Baby Bells to Extend Reach Beyond Borders

SAN MATEO (07/07/2000) - Through recent high-profile mergers and grabs at the long-distance market, the regional Bell companies, spawned years ago from the landmark breakup of AT&T Corp., are becoming formidable players in a telecommunications landscape no longer marked by specialty providers.

Three local telecommunication brands recently completed major moves that signal an interest in pursuing business far beyond the local dial tone. First, Bell Atlantic Corp. officially became one with GTE Corp., calling itself Verizon Communications. Just after that merger passed muster with federal regulators, US West Inc. sealed its merger deal with new-breed carrier Qwest Communications Inc.

Then, local phone giant SBC Communications Inc. broke free of its long-distance constraints in Texas, following in Bell Atlantic's footsteps earlier this year in New York. Bell South is soon expected to win similar rights to provide long-distance service in Georgia.

Combined, the three moves point to a new day in telecommunications, industry watchers said. Predicting the rise of a new pack of "global telecom giants," analysts said that long-distance mainstays such as AT&T and WorldCom will soon go head-to-head with the redoubled Bells.

"What we are going to have is any-distance data companies that also happen to offer voice," said Jeff Kagan, an independent analyst based in Atlanta. "This is the start of the globalization of telecom."

Newly branded Verizon's president of enterprise solutions, Eduardo Menasce, who was plucked out of GTE's lighting operation in Argentina to take the company's top enterprise post, said the blended, New York-based company will pursue multinational and full-service corporate accounts.

"Verizon will have resources from both companies combined as a single point of contact for end-to-end solutions that range from local services to advanced, complicated data networks and call center capabilities," Menasce said.

Joseph Nacchio, the outspoken chairman and CEO of Denver-based Qwest Communications, echoed those words last week at a publicity event to kick off the blending of Qwest and US West.

"This is one giant [step] forward, moving US West from its history as a regulated entity to the world of global telecom," Nacchio said, although he quickly added, "Make no mistake, this industry will always be influenced by government."

Nacchio will hardly take a breath after his long battle to convince officials at the Federal Communications Commission that the union of Qwest and US West should go forward. He has vowed to almost immediately begin going down the long road of getting those same officials to agree that Qwest-US West ought to be able to offer long-distance within its territory.

Ironically, Qwest was forced to part with its long-distance business to get the FCC to bless the union with US West.

"We did something that no one had ever done. We had to sell off our long-distance, and we want to now re-enter that market," Nacchio said. "Within the next 12 months, we hope to get into one or two states in our region."

Relief from long-standing federal regulations that prohibit local phone companies from providing long-distance in their own territory is key to the full-service strategies the Baby Bells have in mind. Currently the Bells must form partnerships to offer long-haul Internet access, long-distance frame relay, and other services to customers within their own region.

The race to offer long-distance is about data, not voice, because revenues on the data side are quickly outpacing voice, said Melanie Posey, an analyst at IDC, in Framingham, Mass.

"When it comes right down to it, Bell Atlantic and everybody else is scrambling to get into [the long-distance voice] market where the cost of service is moving to zero pretty fast," Posey said.

As the traditional walls between telecommunications players crumble, networking decisions may become easier for corporate IT officials, analyst Kagan said.

"This is all great news for corporate customers," he said. "Before, an enterprise would have to stitch together a patchwork of companies and technologies to create a corporate network. Now they will be able to get that from one company, after the dust settles," Kagan said.

But most agree that customer service is an area where the Bells will have to do some convincing, given the reputation the companies carry on both the corporate and consumer side.

Quipped Qwest's Nacchio, "How can I sell a customer on the idea that I want to personalize their life on the Web when I can't provide basic phone service?"

Baby (Bell) steps to a global market

A triple play on June 30 may significantly alter the competitive telecom landscape.

* Bell Atlantic and GTE complete merger and become Verizon Communications* US West and Qwest complete merger* SBC Communications gets federal approval to offer long-distance service in Texas.

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