NEW YORK-GTE Corp. is hopeful the Federal Communications Commission will approve its merger with Bell Atlantic Corp. before the 700 MHz spectrum auctions in May so the combined company can focus undivided attention on the bidding.
“The 700 MHz auction is something being very intensively analyzed and reviewed at Bell Atlantic and GTE, (but you should) never say anything out loud that your competitors can use against you,” Charles R. Lee, chairman and chief executive officer of GTE, said March 13 at the Merrill Lynch & Co. Inc. “Global Telecom Investor Conference.”
“There are exciting opportunities for additional spectrum that would add very valuable assets. In the best of all worlds, we would get all our deals closed before the auction so we are involved in one transaction instead of three.”
The three include the GTE-Bell Atlantic merger, Bell Atlantic’s joint domestic wireless venture with Vodafone AirTouch plc and the 700 MHz auctions. When Bell Atlantic and GTE announced their merger plans in July 1998, they projected that approvals from all relevant state and federal agencies would take about a year.
“We have approval from the Department of Justice, the 50 states, from every authority we need except for the most important, the FCC,” Lee said.
“At the end of January, we submitted a proposal we think resolves all challenges.”
The centerpiece of the GTE-Bell Atlantic application is a proposed initial public offering of a 20-percent equity stake and 90-percent voting control of BBN. BBN is GTE’s Internet backbone unit, which controls long-distance telecommunications assets in Bell Atlantic’s territory. Federal law limits to 10 percent the ownership that regional Bell operating companies can have in long-distance carriers.
“While the FCC is likely to scrutinize such a proposal [because] it skates a gray area … on what degree of control would violate the 1996 Telecom Act, we expect the FCC to react sympathetically because Bell Atlantic has gained some goodwill for its extensive efforts toward long-distance entry in New York and through pledges to repeat the same in other states,” Richard Klugman, a wireline telecommunications analyst for Donaldson, Lufkin & Jenrette Securities Corp., said in a report published March 9.
“In approving the deal, we would also expect the FCC to place requirements to open more fully GTE’s properties to local competition. GTE never had the incentive to cooperate since it gained long-distance entry in the 1996 Act without local de-monopolization prerequisites.”
The spin-off of its Internet backbone business through an IPO also would allow GTE to respond to another master, the investment community, Lee said.
“Instead of our Internet business buried in the rest of the company, it is clear investors like cleaner, easier-to-understand securities, so we will charge full speed ahead with the GTE internetworking IPO,” he said.
“We are also looking at our wireless business. Although there is not anything definitive yet, we are exploring all alternatives to financially engineer the company to unlock its value.”
Meanwhile, earlier this year the Clinton administration unveiled a controversial proposal to tax tracking stock that it said would raise about $1.5 billion over a decade. If enacted into law, the plan would impose a tax on the tracking stock a company distributes to outstanding shareholders of the parent corporation’s equity shares.
Other large carriers, like AT&T Corp. and Sprint Corp., have discussed wireless tracking stocks in terms of providing capital for their companies’ business expansion and investment vehicles for those seeking to participate in newer, higher-growth telecommunications sectors. Lee did not disagree with this assessment, but he did add a slightly different perspective.
GTE’s mature, traditional wireline business accounted for 94 percent of the company’s consolidated net income in 1999. Therefore, it is the cash cow providing funds for the company’s three “growth engines-wireless, data and international,” he said.
Of its $5.5 billion to $6 billion capital expense budget this year. GTE expects to spend about $810 million, a 35-percent increase from 1999, on wireless network improvements.
“We will prepare for data capabilities and (also) bring Ameritech’s properties up to par with GTE’s and Bell Atlantic’s,” Lee said.
After SBC Communications Inc. and Ameritech Corp. merged last year, they sold GTE 20 of Ameritech’s domestic cdmaOne wireless properties, including Chicago and St. Louis. The sale allowed them to comply with federal spectrum ownership caps in large metropolitan areas.
“There is no question wireless data is growing into an important market, and that is why spectrum is so important. We have a lot of spectrum, even in Los Angeles and New York, but wireless data will use up a lot of it,” Lee said.
With respect to broadband access for data communications, the chief executive said, “fixed wireless, cable and digital subscriber line, which uses twisted copper pair (wiring), will all survive and be important.”
GTE sees customer service and bundling capabilities as the primary determining factors in a carrier’s success, he added.
Over the longer term, GTE believes that bundles of wireless, local, long distance, Internet access and television could bring as much as $250 in average monthly revenue per subscriber, Lee said.
