Merger approval labyrinth: GTE, Bell Atlantic still face numerous hurdles

The pending Bell Atlantic/GTE merger offers a case study in the complexity of managing a national telecommunications service across multiple governmental jurisdictions. Ten remaining states and the FCC still must approve the merger (see map), which is complicated by the fact that GTE has operations throughout the U.S.

Meanwhile, opponents question existing agreements, including one inked last month with the Pennsylvania attorney general.

According to the Pennsylvania agreement, both carriers agreed to cap residential local service rates until the end of 2003, and Bell Atlantic will begin reducing the interstate access fees it charges long-distance carriers as soon as the merger is approved. The reductions should total $250 million over five years.

Bell Atlantic also agreed to cut the price competitors pay for local loops from $16.78 to $14.50 immediately after merger approval, and to $14.01 if the company receives approval to offer long-distance. GTE agreed to cut local loop pricing from $27.17 to $12.29.

According to the Competitive Telecommunications Association, those local loop rates still are too high.

The Pennsylvania Public Utility Commission still is trying to agree on conditions for Bell Atlantic long-distance approval. One point the parties involved have not yet agreed on is loop pricing, said Terry Monroe, vice president of state affairs for CompTel. The prices specified in the merger proposal are the ones Bell Atlantic recommended in previous proceedings and are higher than what competitors have suggested.

Parties involved in ongoing negotiations pertaining to the long-distance approval conditions are concerned that Bell Atlantic is trying to pre-empt them through the merger conditions, Monroe said.

CompTel, whose members include AT&T and MCI WorldCom, also objects to the limits the agreement places on the availability of unbundled network element combinations.

"My reading of the [merger conditions] says that unbundled network element platforms wouldn't be available in GTE's existing territory," Monroe said, "and any unbundling they agreed to is subject to appeal by FCC order."

The Pennsylvania merger agreement still is subject to review by the state PUC administrative law judge and the full commission. Bell Atlantic and GTE officials expect approval some time in the fourth quarter.

Any eventual deal in Virginia - one of the other pending states - will be similar to the Pennsylvania agreement because the state issues are similar, Bell Atlantic officials said.

But in Vermont and Maine, the merging companies must address economic development issues.

Other state-specific issues include potentially returning 50% of any merger savings to customers in California and making specific commitments for DSL deployments in Ohio. In Hawaii, Bell Atlantic and GTE are appealing whether the state PUC has jurisdiction over the merger.

Despite the daunting complexity, the state approvals should occur with few hitches, said Scott C. Cleland, managing director of Legg Mason Precursor Group in Washington.

"The state approvals aren't the problem in completing the merger," Cleland said. "The FCC is the important sticking factor."

Cleland expects the FCC to impose many of the same requirements of the proposed Ameritech/SBC Communications merger, such as discounts of up to 32% to competitors on resold local service and 25% for unbundled loops.

Every succeeding merger involving an RBOC has included more stringent requirements than the previous one, said George Reed-Dellinger, senior vice president with HPBC Washington Analysis. He also expects the FCC to impose the same conditions on the GTE/Bell Atlantic merger as on the Ameritech/SBC deal, "plus one more." However, he declined to speculate.