California Regulators Are Ready to Approve GTE-Bell Atlantic Merger

California regulators are poised to approve the $70-billion-plus merger of GTE Corp. and Bell Atlantic in early February under a draft decision that requires the phone companies to submit to stepped-up service quality monitoring and to distribute $84 million in merger gains to customers and community groups statewide.

Irving, Texas-based GTE, which in July 1998 agreed to merge with East Coast powerhouse Bell Atlantic, provides local phone service in 28 states and has more than 4 million wireless customers nationwide.

In California, GTE is the state’s second-largest local carrier after Pacific Bell, with 4.6 million phone lines in service statewide. The majority of its California customers are in West Los Angeles or in less-populated regions of the state, although GTE’s wireless unit has a substantial presence statewide.

In its proposed ruling, regulators call for the merged company to follow through on the stated intention of expanding its residential and business services into greater Los Angeles, San Diego and San Francisco within 18 months of the deal’s closing.

The proposed decision approving the merger, made public Wednesday by the California Public Utilities Commission, is scheduled for a vote Feb. 3.

The GTE-Bell Atlantic merger--one of many blockbuster phone deals forged in recent years--already has won approval from more than 30 states and from both companies’ shareholders.

In May, the U.S. Justice Department cleared the deal on condition that the companies sell off overlapping wireless properties.

Regulators in California and Ohio, as well as at the Federal Communications Commission have yet to vote on the merger. Still, the two companies say they expect to close the deal by the end of March.

Peter Thonis, a spokesman for GTE, said the company is “very pleased” that California regulators have recommended approval.

GTE, the only major local phone company not descended from the old AT&T; monopoly, is unique in that it already offers its residential customers both long-distance and local phone capabilities, as well as Internet access and other services.

By contrast, the so-called Baby Bell phone companies, such as Bell Atlantic, must adhere to strict regulatory requirements to win state and federal clearance to sell long-distance in their home markets.

Under the 173-page ruling, the PUC concluded the merger would not stunt phone competition in the state or have an adverse effect on GTE’s California customers.

The PUC also said that the merger will result in a net benefit of $168.1 million to GTE and Bell Atlantic over five years.

Under state law, at least 50% of those “benefits” must be returned to customers, since they helped build the value of GTE over the years as captive ratepayers.

Using that estimate, the PUC proposes that GTE-Bell Atlantic return $84.1 million to customers, with $64.3 million given to customers through bill credits, and the remainder ($19.8 million) to be set aside to fund a Community Collaborative Agreement.

The Community Collaborative Agreement is supported by advocacy groups statewide and would finance an entity devoted to making sure underserved communities have access to telecommunications services.

However, critics have objected to diverting money earmarked for customers to the CCA, especially since a similar entity created in the wake of SBC Communications’ purchase of PacBell has yet to disburse its grant money after three years.

“The commission should have learned that that approach didn’t work out the way they thought it would,” said Kelly Boyd, a telecom analyst at the Office of Ratepayer Advocates, an independent arm of the PUC devoted to consumer issues.

Still, Boyd applauded other PUC provisions aimed at enhancing competition and protecting consumers from any degradation in service.