There's another new leader in the race to control the local and wireless segments of the telecom industry now that the FCC (www.fcc.gov) officially approved the merger between Bell Atlantic Corp. (www.bellatlantic.com) and GTE Corp. (www.gte.com).
Setting 25 conditions on the merger, the FCC approved a deal that's been on its desk for two years. The combined companies will be known as Verizon Communications and almost immediately will offer bundled services. Bell Atlantic and GTE swiftly expect to close the merger by the end of the month.
"Our merger will be a transforming event for both of our companies," said Charles R. Lee, chairman and CEO of GTE and designated chairman and co-CEO of Verizon, during a press conference July 16. "It will enable us to offer customers the richest array of high-growth communications services over the most extensive national footprint and in the world's most attractive markets."
Also at the press conference, Ivan Seidenberg, Verizon co-CEO and chairman and CEO of Bell Atlantic, said Verizon will become "the next great brand in communications," capitalizing on the "new economy growth trends that are shaping communications in the U.S. and around the world."
The FCC gave the deal the green light after being satisfied that the companies would spin off GTE's nationwide Internet business into a separate public corporation that will be known as Genuity.
This ensures that Verizon complies with Section 271 of the Telecommunications Act of 1996, which forbids a BOC from providing long-distance voice or data services in its region before it demonstrates that its local market is open to competition.
"In this era of convergence, we must be mindful of over-consolidation," FCC Chairman William E. Kennard said in a statement. "There will be those that will claim this merger brings us closer to a re-emergence of Ma Bell, however, my support is predicated on the applicants' enforceable commitments to open its traditional local markets to competitors, invest in new markets, and accelerate deployment of broadband technologies.
"The end result," Kennard said, "should produce more competition, not less."
Bell Atlantic currently only has permission to offer long-distance services in New York State. But Seidenberg said the companies hope to have Bell Atlantic's future 271 approvals in hand within two years. Once Verizon gets approval to offer long-distance service throughout Bell Atlantic's territory, it can have up to an 80 percent stake in Genuity.
Specifically, under today's ruling, the FCC says that Bell Atlantic can't convert its permissible 9.5 percent interest in Genuity into a greater equity ownership unless it does receive long-distance approvals within five years covering 95 percent of its region where Genuity operates. The merged company also can't gain economic benefit from the long-distance services of Genuity "for those states in which Bell Atlantic is restricted from providing long-distance services," the FCC said.
Competitors have complained that if Bell Atlantic were to buy back more of Genuity down the line, they would be greatly disadvantaged because the BOC would be circumventing the Telecom Act and be allowed into long-distance before meeting Sec. 271's market opening conditions.
"My support also rests on the merged company's compliance with Sec. 271," Kennard said. "I could not have allowed this, or any other merger, to violate this core Act provision." Whether Verizon ever reacquires Genuity remains an open question, he added.
Federal regulators also said they were pleased by the companies' promises to spend $500 million to enter local phone markets to serve 250,000 new customers outside of their current territories. That would make Verizon a rival to other BOCs in some regions, offering another option for local services or Internet connections, the FCC said.
Landing GTE marks another step in Bell Atlantic's evolution into a telecom powerhouse. In 1997, the company merged with Nynex --- one of the other seven Bell companies created from the 1984 breakup of AT&T Corp. (www.att.com). Verizon now becomes the largest local phone company, controlling 63 million phone lines with a presence in more than 30 states.
In the U.S. market, Verizon unites GTE's mostly suburban and rural operations with Bell Atlantic's operations in 13 Eastern states and the District of Columbia. Verizon's wireline operations will reach one-third of all United States households and serve two-thirds of the top 100 markets, including nine of the top 10.
Verizon Wireless --- formed in April through a joint venture combining the U.S. wireless assets of Bell Atlantic and Vodafone AirTouch (www.vodafone.com) - now gains GTE's wireless assets, making it the nation's largest wireless company, serving some 25 million wireless and almost four million paging customers.
Verizon also will be a leader in high-growth data markets, with digital networks that already include more fiber optics and more first-mile assets than any other communications company, Lee said. These networks eventually will give Verizon a major distribution platform for electronic commerce and various other services, including high-speed Internet access powered by DSL, he said.
"The conditions related to advanced services should increase residential and rural broadband deployment," FCC Commissioner Gloria Tristani said in approving the merger. "The commitment that at least 10 percent of the urban wire centers and 10 percent of the rural wire centers where Bell Atlantic/GTE provides xDSL will be low-income wire centers addresses relining concerns."
Verizon also is better poised to go after global businesses and consumers, the company's chief executives say. The company's investments and operations in Europe, Asia and the Pacific, Canada and Latin America will have a market value estimated at $25 billion to $30 billion, Lee said.
Lee also said during the press conference that Verizon will "never say never" to more acquisition opportunities in the future. "International connectivity will be a great opportunity," he said. "Telecommunications in the future is end-to-end connectivity and we're an unfinished symphony in that area.
"We're confident we'll transform … into a global leader," Lee added.
While the FCC's ruling was unanimous, Commissioners Harold Furchtgott-Roth and Michael K. Powell, both Republicans, dissented in part on the decision.
"I do not endorse the quasi-antitrust analysis that this commission has used to determine whether a license transfer is in the public interest," Furchtgott-Roth said. "And I do not join in those portions of this order that follow this approach."
Furchtgott-Roth always has believed that law doesn't back up the commission's public interest test. He also says that the FCC hasn't established procedures for processing license transfer applications and instead uses a "free-wheeling approach."
Powell believes that "fewer conditions, tailored to address the specifically identified harms, would have been the correct result" of the FCC's order.
In commenting on whether this merger approval will sustain expected legal ramifications, Lee said, "this arrangement is bulletproof. There is no chance [the FCC's decision] will be overturned."
