GTE Blitzkrieg

Carrier vaults into Internet arena with slew of announcements In a move designed to reposition the country's largest Independent telco as a supercarrier of the future, GTE announced several major deals last week that will anchor it firmly in the upper echelons of the Internet arena. Chief among them is its plan to acquire BBN Corp., the Boston-based Internet service provider hailed as one of the inventors of the Internet.

GTE also announced a strategic alliance with Cisco Systems to jointly develop data services and its intent to buy a national fiber optic network from Denver-based Qwest Communications. Finally, the telco announced that it will restructure its telephone operations division (see story on page 8).

GTE is touting last week's uber-announcement as the final piece of its strategy to offer commercial and residential customers a complete package of services on a single bill. The telco now offers local phone service, dial-up Internet access and wireless services in 29 states, as well as long-distance service in all 50 states. The BBN buy, combined with the Qwest network, will let GTE expand the services it can offer and the regions where it can deliver them.

"The result is that we will be a national provider of a full bundle of services and end-to-end managed network solutions," said Charles Lee, GTE chairman and chief executive officer.

The $616 million BBN buy gives GTE access not only to the ISP's Internet backbone and customer base but the brainpower of an Internet pioneer, analysts say. "The actual gem they're buying is brains," said Joe Bartlett, program manager for The Yankee Group. "BBN is a real talent base for network engineer types who understand the Internet world from the systems side."

The GTE/BBN deal signifies an expansion of Cisco's relationship with BBN and a major shift in the buying habits of the data industry.

"Clearly, [GTE] has recognized the benefit of working tightly with a single supplier, which is a better time to market and a lower overall cost," said John Shantz, vice president of service marketing at Cisco. "It's a common practice among telcos in the voice world, and it's a major shift for them to begin adopting those types of relationships in the data world."

Cisco will supply GTE with as much as $1 billion of products over five years, including high-end routers, asynchronous transfer mode and frame relay switches, and customer premises equipment, as well as network and service management solutions, Shantz said.

GTE will also throw $485 million at Qwest--home of former AT&T veteran Joseph Nacchio--for 24 dark fibers and associated facilities. The network, which is 30% completed and will be finished by the end of 1998, will span 13,000 miles and connect 92 metropolitan areas.

"It gives us the backbone to carry the voice and data traffic we'll need to generate," said Mike McDonough, market integration vice president at GTE. "It's a building block of our national strategy."

Together, GTE's deals put it ahead of its Bell brethren into the big leagues, competing head to head with the likes of MCI and WorldCom.

But industry experts agree that GTE faces some hurdles.

For one thing, GTE and BBN have very different corporate cultures, said Bill Bane, vice president and group head at Mercer Management Consulting. "Historically, the landscape is littered with acquisitions gone bad," Bane said.

Another risk is that BBN will likely lose one of its largest customers. AT&T, which reportedly was considering buying BBN itself but didn't like the price tag, has a contract with BBN to carry traffic for the business side of its WorldNet Internet access service. BBN Chairman George Conrades said that the two companies are involved in "dispute proceedings," but he declined to elaborate.