U S West Inc.’s and Global Crossing Ltd.’s marriage announcement last week leaves BellSouth Corp. the only Baby Bell not betrothed in the telecommunications industry.
“There no longer is a need for a regional Bell operating company or a local exchange carrier because today, we need to be a global player which must be data centric,” said Robert Annuziata, chief executive officer of Global Crossing, in last week’s conference call announcing the merger. Annuziata’s comment is the mantra of many telecommunications executives, who are quickly hammering out deals to become nationwide and global one-stop-shop players.
BellSouth agrees, but remains cautious.
“In every other deal that has happened, we have been privy to those and decided not to get involved because we didn’t feel at the time that they would produce a positive return for our shareholders,” said Jeff Battcher, BellSouth spokesman. “As our chairman has said, we don’t have a go-it-alone strategy. But, whatever deals we make are going to be very well scrutinized and would have to show us that it would positively impact shareholders.”
The U S West/Global Crossings merger did not sit well with shareholders last week, and credit-rating agencies have placed U S West on negative watch. The estimated $37 billion deal links U S West’s local phone, wireless and Internet businesses and Global Crossing’s global fiber-optic business. In a separate deal, Global Crossing will purchase Frontier Corp., one of the parents of Frontier Cellular, to gain access to the U.S. long-distance market. The new company, to be named Global Crossings Corp., will be 50-percent owned by U S West shareholders and 50-percent owned by Global Crossings/Frontier shareholders.
Share prices for both companies have fallen. U S West stock had fallen more than seven points and Global Crossing lost more than 10 percent of its value by Wednesday.
Analysts wonder if all three companies’ assets are a natural fit. Federal regulators have barred U S West from offering long-distance service to its own customers, which could mean Frontier would be required to divest some of its long-distance operations. An RBOC’s entrance into the long-distance market requires state and federal regulatory approval and proof that the company has opened up its local markets to competition-a process that so far has moved at a snail’s pace.
“We are making sure we comply with state regulators and the FCC (to offer long-distance service),” said Sol Trujillo, chairman, president and CEO of U S West. “We’re intending to be very aggressive in terms of making filings and waiting to do it when we have what we need.”
But BellSouth may have the smarter strategy. The company is looking to close a deal with long-distance operator Qwest Communications Inc. that will give BellSouth 10-percent ownership of the company. Once BellSouth is allowed into the long-distance market, it can increase its stake to 20 percent.
“With Qwest, we can follow customers outside of our region,” said Battcher. “We can do that with data services, and once we’re allowed into long-distance, we can do the voice portion of it.”
Other RBOCs have opted to team with each other to expand their U.S. footprint rather than trying to piece together disparate networks. AT&T Corp. is entering the local market through cable acquisitions.
The wireless implications of the U S West/Global Crossings merger are unknown. U S West said it will keep its Code Division Multiple Access personal communications services operations in the 14-state region in the West. U S West also has been aggressively pursuing plans to deploy wireless local loop service. Frontier Cellular marks its one-year anniversary this month of the commercial launch of its WLL system in its New York markets.
