Bell Atlantic Suggests Net Spinoff

Bell Atlantic Corp. is exploring a massive $2.5-billion spinoff of Internet assets in an effort to gain Federal Communications Commission approval for its acquisition of GTE Corp., people familiar with the plan said Tuesday.

Bell Atlantic, the second-largest local telephone company, has so far been unable to gain approval for the deal, originally valued at $53 billion, in part because GTE operates a high-capacity Internet backbone that Bell Atlantic is currently prohibited by law from owning.

In a recent proposal to the FCC obtained by Reuters, Bell Atlantic suggested spinning off a new company that would take possession of GTE’s fast-growing Internet working unit after the merger. The new company would be 90% publicly owned, raising about $2.5 billion in a share offering.

Bell Atlantic would own 10% of the Internet spinoff, but would have an option to raise its stake to 80% or 90% if it received regulatory permission to own the Internet backbone within five years.

The combination of Irving, Texas-based GTE and New York-based Bell Atlantic would create the largest U.S. local carrier, with revenue of more than $55 billion.

GTE’s Internet unit represented only a small portion of that revenue, but it grew by 89% in the third quarter.

The latest plan follows a series of trial balloons and proposals to the FCC that have so far failed to meet regulatory concerns.

FCC officials said it was too soon to determine if the latest plan would fully meet their concerns. One official noted that Bell Atlantic was “listening and responding” to the agency’s concerns with each new proposal.

Bell Atlantic spokeswoman Susan Butta emphasized that the latest plan was still in the exploratory stage.

Separately, a federal appeals court Tuesday allowed Bell Atlantic to begin offering long-distance service in New York state immediately while it considered a legal challenge from other carriers.