FCC okays Bell Atlantic/GTE merger

The Federal Communications Commission on Friday approved the merger of Bell Atlantic and GTE, setting in motion a complex restructuring of various telephony and Internet businesses that could take users on a bumpy ride.

As a result of the decision, GTE will spin off its Genuity Internet unit but retain the right to get back the majority of its stock within five years. GTE cannot keep Genuity for now because its merger partner, Bell Atlantic, is generally not permitted to carry any kind of long-distance traffic, including Internet traffic.

Known in past lives as GTE Internetworking and BBN, Genuity is one of the leading U.S. Internet backbones and could fetch a substantial price in its pending public stock offering.

But under the conditions approved by the FCC, the merged company - to be called Verizon - will be able to get back Genuity if it obtains long-distance approval for 95% of Bell Atlantic's territory within the next five years. Bell Atlantic currently has long-distance approval only for New York state.

The two merging companies' CEOs - Chuck Lee of GTE and Ivan Seidenberg of Bell Atlantic - confirmed in a telephone conference that the option to recapture Genuity closely follows the lines of a complex formula submitted by the companies a week ago, after the FCC rejected several earlier proposals. That formula requires Verizon to forfeit some of the stock appreciation that Genuity could enjoy between now and the time that Verizon snatches it back.

As usual, the FCC attached a laundry list of additional conditions to the merger requiring Verizon to promote DSL in poorer neighborhoods and compete out-of-region against other Bell companies. But in their phone conference, the two CEOs already were attaching caveats to those conditions.

For example, the FCC is requiring Verizon to spend at least $500 million in the next three years to provide competitive local service, "including traditional local telecommunications services and advanced services," out of their combined region. But Seidenberg said much of this spending will include the wireless businesses that Verizon already holds beyond Bell Atlantic and GTE's natural territories and may include DSL and voice-over-IP projects, all but ruling out classic local phone service.

Despite years of announced intentions and policy statements, no Bell company has ever really made a serious effort to invade another Bell's native territory as a direct wireline-services competitor.

The merger may still face one more hurdle. Late Friday AT&T released a statement leaving open the possibility of a lawsuit based on its repeated past claim that letting Verizon hold an automatic route back to Genuity in effect lets Bell Atlantic into long-distance before its time. "We will review the decision carefully before determining what, if any, further action is appropriate," AT&T said.

Although the FCC approved the merger 5-0, three of the commissioners larded their statements with criticisms of the way their colleagues developed the merger conditions or veiled threats against GTE and Bell Atlantic to live up to the conditions or else. Many of the conditions bear strong resemblance to those agreed to by SBC when it bought Ameritech, though SBC has yet to make a significant entry into any of the 30 out-of-region markets it said it would after that merger.

Contact Senior Editor David Rohde

Recent articles and columns by Rohde