Bell Atlantic offers to sacrifice GTE's Internet unit

WASHINGTON, D.C. - Bell Atlantic and GTE, still seeking government approval for their merger, have told regulators they are willing to sell off GTE's Internet unit, but they want to do it in a way that has leading critics of the merger calling the proposed sale a sham.

As part of the sale, the two companies want to keep a marketing tie with GTE Internetworking that critics say defeats the whole purpose of selling it off - to keep Bell Atlantic from owning an Internet backbone before it has full long-distance authority.

And as a result of the new controversy, the merger might now occur without one of the benefits that the merging carriers originally claimed for the deal: the ability to put local loops and high-performance IP network services together in one carrier's package.

Since 1998, Bell Atlantic has said because GTE Internetworking offers Internet access, virtual private networks (VPN) and Web hosting, the merger is uniquely beneficial for users in Bell Atlantic's and GTE's respective local service territories.

Quietly grown closer

In fact, Bell Atlantic and GTE officials confirm that over the past few months, they have quietly developed some comarketing arrangements even before a merger closing. For example, at the recent ComNet 2000 show in Washington, D.C., displays at Bell Atlantic's booth indicated that the Bell Atlantic Data Solutions Group is selling GTE Internetworking's VPN and Web hosting services, complete with security features and service-level agreements.

But on Jan. 27, after months of preliminary negotiation with the Federal Communi-cations Commission and help from lobbyists such as former FCC Chairman Richard Wiley, Bell Atlantic and GTE formally proposed to the FCC to sell 90% of the stock in GTE Internetworking to the public in order to close their merger. Yet the same proposal stated that the merged company will continue to "market" GTE Internetworking services.

String attached?

Opponents of the merger, namely competitive local carriers and long-distance companies, say that amounts to a big string attached to the sale.

"If GTE Internetworking is really going to be independent, then how does Bell Atlantic know they're going to continue to have a marketing agreement with them?" fumed one such opponent, who asked not to be identified.

Bell Atlantic officials say they're not trying to pull a fast one. Because 90% of GTE Internetworking's stock will be out of Bell Atlantic's hands, it's true that Bell Atlantic couldn't stop GTE Internetworking from doing what it wants, concedes Don Evans, Bell Atlantic's vice president of federal regulatory matters.

"But we're hopeful that this [marketing arrangement] is going to keep on going," Evans says. "We are not planning on it falling apart."

Besides, Evans notes, Bell Atlantic and GTE do have to propose some sort of new status for GTE Internetworking because of telecom regulations. As one of the original regional Bell operating companies, Bell Atlantic is generally prohibited from carrying long-distance traffic, while GTE - even though it is as much or more dominant in its territories than Bell Atlantic is - has no long-distance prohibition. Because any merged company that includes one RBOC automatically becomes an RBOC itself, the merged Bell Atlantic/GTE will have long-distance restrictions. And GTE Internetworking, which operates the nation's fourth-largest Internet backbone, is considered to be a long-distance carrier.

So far, Bell Atlantic has only won long-distance authority for one of its states: New York. Under the Jan. 27 proposal, Bell Atlantic will have the right to buy back GTE Internetworking once it receives long-distance authority for most or all of its states. Evans says he hopes the FCC will allow Bell Atlantic to buy back GTE Internetworking once it has long-distance authority for all its states except Maine and West Virginia.

Those states either do not have GTE Internetworking facilities or can arrange to have GTE traffic bypass them, Evans says.