BellSouth happy to remain independent, for now

Alone among its Baby Bell brethren, BellSouth appears happy to remain largely independent, expanding its high-speed Internet and telephone services in its nine-state Southeast region without trying to play the high-stakes merger game.

"They say they don't need it," said Bank of America Securities analyst Rex Miller. "They believe they're in good shape to go it alone."

The position sets the company apart in today's telecommunications market. Fellow Baby Bell US West is the subject of a fierce bidding war between Qwest Communications and undersea cable company Global Crossing. SBC Communications is merging with Ameritech, and Bell Atlantic is combining with GTE in ambitious efforts to expand their local telephone and high-speed Internet efforts.

By contrast, BellSouth appears committed to dominating its own corner of the map by adding services instead of expanding territory.

Like other large local phone companies, BellSouth has bought itself a tentative foothold in the long distance market, by taking a 10 percent stake in Qwest--the same company now engaged in a no-holds-barred bidding war for US West.

Some analysts have speculated that the company might take a larger stake or even buy Qwest outright once that bidding war closes and once BellSouth itself wins regulatory approval to enter the long distance market. The company has left that possibility open, securing the option to buy another 10 percent of Qwest as a part of its original partnership but has refused to comment directly on its further expansion plans.

"We're always looking at options," said Bob Cunha, the company's vice president of broadband services.

Staking out the broadband terrain
With expansion into the $90 billion-a-year long distance market still in the future, BellSouth is staking much of its new spending on the consumer high-speed Internet business.

The company has rolled out broadband telephone line services a little more slowly than some of the other big local phone companies, in large part because of technical hurdles inside its own network. But at the same time it has experimented with other options, analysts say.

It has taken a lead in bringing fiber optic cables directly to customers, with a trial project in Florida that will be able to offer telephone, high-speed Internet, and television services to more than 200,000 homes by the end of the year. It also has uses some wireless technology to deliver TV signals to a small number of homes and ultimately plans to upgrade this to provide Internet service.

"They are taking a broad view of infrastructure," said International Data Corporation analyst Jeannette Noyes. "They'll tend to use whatever technology will work best in any situation."

While rolling out these networks, the company has acted more vigorously to protect its own broadband brand name than have some of its local telephone peers.

While SBC Communications and Bell Atlantic have partnered with America Online to provide high-speed Internet services, BellSouth has kept the dial-up giant conspicuously off its network even while smaller ISPs such as MindSpring and other local players have signed DSL distribution deals.

"I don't need AOL to help sell DSL to our customers," Cunha said.

This separation is likely to continue for some time while BellSouth establishes its broadband brand name in the public eye, analysts said.

"Given what we've seen from BellSouth to date, I think they would be hesitant to forge a deal with AOL, or at least reluctant to use their own marketing resources to promote AOL's service," said Joe Lazlo, a Jupiter Communications analyst.

Portal play
All of the Baby Bells are scrambling to build broadband portal sites or services that will help re-create the telcos as Internet services more successfully than did their dial-up ISP units. BellSouth, US West, and PointCast all were part of a consortium trying to develop an @Home-like service over telephone lines early this year--an effort that collapsed when the parties couldn't agree on terms.

Since the dissolution of that effort, US West has partnered with Internet "push" company BackWeb to create a similar service. Later this year, the company will unveil software for its broadband users that acts much like a portal, gathering customized information from around the Web.

BellSouth is still in the early stages of developing its own broadband portal service, but sees the final product as a critical component of keeping its high-speed Internet brand strong. The portal will have the traditional content offerings found in places like Yahoo and on BellSouth's current Buzz site, but will also provide more, Cunha said.

"Our belief is that there are two very powerful things that a portal needs to be," Cunha said. "It needs to take advantage of the high speed, and it has to bring applications close to customers."