BBN deal hurts GTE
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Already the largest U.S. regional phone company, GTE has more than 100,000 subscribers to its dial-up Internet service throughout the United States. Now, BBN's strength in dedicated access will give the company a much stronger position among corporate users.
GTE also is buying a piece of Internet history with its purchase of BBN: The company was the government contractor that built the ARPAnet, a forerunner of the Internet.
GTE has already tried to exploit the synergy between its phone and Internet services, offering discounts to users who subscribe to both. Similarly, the company has taken advantage of the deregulation of the Telecommunications Act of 1996 to offer a bundle of local and long distance service for customers.
Today, analysts said they expect to see much greater integration between the company's wireless, wireline, and data network services. GTE is also expanding its trials of high-speed ADSL technology for Internet connectivity.
"The issue of bundling has been a tremendously important topic in terms of how services are provided," said Gary Arlen, president of Arlen Communications in Bethesda, Maryland. "We thought we'd go all over with a la carte pricing, but it turns out customers really do like one-stop shopping."
A year ago, MCI introduced its one-stop shopping package, called MCI One. WorldCom has also expanded its menu of services by gobbling up MFS Communications, which had gobbled up Internet service provider UUNet Technologies before that.
Some analysts think the one-stop shopping approach won't appeal to all customers but is becoming a required offering for communications companies.
"That doesn't mean everybody is going to do it, but you've got to have that option," said Scott Wright, a telecommunications analyst at investment banking firm Argus Research. "As telecommunications becomes increasingly complicated, you've got to make the back office stuff less complicated."
In addition to buying BBN for $616 million, GTE acquired a portion of a national fiber optic network being constructed by Qwest that will help it offer various interactive services, including video. The company also announced an alliance with Cisco Systems today to develop data and Internet services for business customers.
Investors reacted skeptically today after GTE announced its acquisition plans. The company's stock fell to 45, down 2-3/8 from yesterday. BBN's shares, meanwhile, rose to 28-7/8, up 4-1/4.
Although GTE has previously said its growth rate is expected to reach more than ten percent in the "foreseeable future," the acquisition is expected to result in flat to slightly positive earnings growth this year, moderate growth next year, and growth in 1999 of more than 30 to 50 percent.
Correction notice: In a previous version of this story posted on May 6 at 5:30pm, WorldCom was incorrectly identified as Interliant. Interliant is a UK-based electronic communications that was formerly known as WorldCom. NEWS.COM regrets any confusion caused by the error.