BellSouth, Qwest team for local/long-distance alliance

You can start thinking of BellSouth and Qwest as a single source of network services.

BellSouth this week made a $3.5 billion investment in and a significant ally of No. 4 long-distance carrier Qwest. The deal will start as a marketing alliance. But eventually it will grow into a partnership where BellSouth will use Qwest's 18,500-mile fiber-optic network to provide long-distance and data services.

For now, the two companies will market services jointly. BellSouth will provide local phone services and Qwest will offer data network services, Internet and long-distance phone services.

When BellSouth gets regulatory permission to sell long distance, the companies plan to link their ordering systems and develop new services together and to directly sell each other's services.

Until then, the two companies have to walk a fine line with their joint marketing. They will refer customers to each other, but will not actually sell the other company's services outright.

At the moment, federal regulations limit BellSouth's ownership in any long-distance company. But when BellSouth gets regulatory permission to sell long distance, it can boost its investment in Qwest to 20%. If BellSouth buys the extra 10%, it will also get a seat on the Qwest board.

BellSouth needs an arrangement like this to stay competitive with other regional Bell operating companies, according to J.B. Haller, a director of research at Current Analysis in Sterling, Va. Bell Atlantic and NYNEX merged, as did SBC Communications and Pacific Telesis. NYNEX wants to buy GTE and SBC is also trying to purchase Ameritech.

Qwest says it regards the deal as a way to get business customers more quickly by gaining entry to BellSouth's largest business customers. The alliance will also give Qwest a conduit to deliver local services in the Southeast.

BellSouth will gain use of a national and international long-distance network without having to buy or build them, says Duane Ackerman, chairman and CEO of BellSouth.

The two companies will be able to offer e-commerce services, Web hosting and coordinated frame relay and ATM services. "It's all about data," Ackerman says.

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