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Networking pioneer caught between Bells and FCC

Former networking pioneer BBN is fighting for its survival in the middle of a tug-of-war among federal regulators, Bell Atlantic, and GTE.

Thirty years after helping create the first version of the Internet, former networking pioneer BBN has found itself at the center of a tug-of-war among federal regulators, Bell Atlantic, and GTE.

BBN--now called GTE Internetworking--is one of the technological jewels in GTE's crown, and one of the primary reasons Bell Atlantic is interested in merging with its erstwhile rival. But looming regulatory concerns have thrown the future of BBN's backbone and technology business into question.

As a result, executives are looking at the past, linking the company's legacy to its current business as a way to bring the division back into the public eye.

"Especially as we get closer to completing the merger with Bell Atlantic, you're going to see us telling our story more aggressively," said Paul Gudonis, president of GTE Internetworking. "You will see us tout our BBN heritage a lot more."

The company aims to distinguish itself from the legions of newcomers to the backbone and Internet services business, like Qwest Communications International and PSINet.

But analysts say that BBN is also looking to raise its profile in hopes of retaining its semi-independence under Bell Atlantic--as well as convince regulators to approve the merger with GTE's Net division intact.

"What Bell Atlantic and other companies are trying to do is convince regulators that the merger will increase competition outside their own footprint. Internetworking is the obvious vehicle for this," Boyd Peterson, telecommunications analyst with the Yankee Group, said. "Putting [BBN] out front makes sense from a policy perspective."

Merger concerns
Bell Atlantic is merging with GTE in a deal that will create one of the largest telephone companies in the world. Although the merger will increase Bell Atlantic's local coverage, it was GTE's Internetworking arm that truly enticed the local firm to cut the deal.

"It is by far the most important element in the deal," Scott Cleland, analyst with Legg Mason Precursor Group, said.

But there's a problem. Bell Atlantic isn't yet allowed by federal law to carry long distance data or phone traffic, and GTE Internetworking's backbone carries long distance traffic. That has led to some creative thinking by executives.

GTE has considered putting BBN assets in a kind of trust account, allowing the company to operate separately for a short period of time. Once Bell Atlantic wins approval to enter the long distance market--a process it is currently in the middle of--it would bring BBN back into the fold.

It would be an unprecedented solution to federal regulatory concerns--but one that just might be accepted by the Federal Communications Commission, some analysts say.

"There is a lot in it for [the FCC] as well, particularly if they are able to get the market opening concessions they want," Cleland said. "In order to get the benefits of GTE connecting to networks, they are going need to get [federal approval]."

In the meantime, GTE Internetworking is highlighting the BBN story as part of a public relations drive aimed at boosting its image in a market newly saturated with Web hosting, Internet services, and infrastructure companies.

Claims to the early Internet
BBN in its early days was responsible for ArpaNet, the forerunner to today's Internet. Through a series of acquisitions, the firm became one of the country's leading Internet backbone services. In 1997, phone giant GTE bought BBN and turned it into GTE Internetworking, its own semi-independent data division.

The acquisition prompted an exodus of senior employees, although analysts say GTE has been fairly good at retaining BBN's technical talent. Even so, former CEO George Congrades found his way to the top slot at Akamai, while former CTO John Cunnan now works for telecommunications firm Nextlink.

Today, the company is boosting its Web hosting and e-commerce service businesses, along with new high-speed Internet access initiatives. Analysts say that these innovations have kept BBN at the forefront of Net technology, which has been largely fueled by GTE's decision to keep the division independent.

Bell Atlantic would be well-served by allowing BBN to remain independent, much as MCI WorldCom has allowed its UUNet data arm to remain largely intact.

"Both have handled it in similar ways," said Stephen Harris, an International Data Corporation analyst. "I think it's been a brilliant strategy in both parents, since this area is moving so fast."