SmartMoney. Bell Atlantic's Big Appetite
September 14, 1999
By Alec Appelbaum
WHEN YOU were a teenager and you wanted a car, did you
sometimes pretend you were steering a roadster when you
were actually just turning the handlebars on your bike? Come on, admit it, you did. Similarly, Bell
Atlantic (BEL) wants to offer nationwide long distance, local and business service. So, through a possible
alliance it's discussing with Vodafone AirTouch (VOD), it may be about to practice using the wireless
network -- which already provides a way to snare business customers and may serve as flypaper for local
and long distance customers in the next couple of years.
Under the discussions -- which Bell Atlantic has acknowledged but refused to describe -- the two
companies would probably agree to meld their digital wireless networks, with Bell Atlantic running the
operation in the U.S. and Vodafone AirTouch, which has its headquarters in Britain, handling things
overseas. (For those of you who came in late, Vodafone beat out Bell Atlantic in a bidding war for
AirTouch last winter.) That's all good for wireless economics -- Bell has a well-built network on the East
Coast, AirTouch one on the West Coast, the companies use a common advanced digital standard, and if
they came together, they could offer single-rate pricing plans without having to shell out too much in the
way of roaming fees for access to other carriers' networks.
But in the context of Bell Atlantic's bid to exploit the Telecommunications Act of 1996 and become the
first Baby Bell to sell long distance service, the deal takes on a deeper pitch. Bell Atlantic is close to
closing its acquisition of GTE (GTE), the only Bell-size independent phone company, which, in addition to
its scattered local-phone businesses, has established a profitable wireless network of its own. At the
same time, it's hammering away at state regulators for the right to sell long-distance -- and the door is
likely to swing open in the next six months. Seems like a good time to establish a nationwide brand. Bell
Atlantic can kick-start its nationwide brand by fusing its wireless network with GTE's and Vodafone's and
developing national offers to compete with AT&T (T) and Sprint PCS (PCS).
Bell Atlantic showed up on our screen today for reasons broader than the headlines. We were hunting for
telecommunications carriers with over a billion dollars in sales, recent improvements in their ability to earn
returns on their assets, and sales growth below the industry average -- companies that need more
revenue and more customers but don't necessarily need to take on a whole new bundle of assets. As a
wireless provider that wants to lure more subscribers and a local player with aspirations of selling more
services, Bell fit the bill.
"There's no doubt that all regional players see a necessity of being strong
nationwide if not internationally," says Elliot Hamilton, a senior vice
president with the Strategis Group consulting firm. "Carriers are competing
fiercely for business travelers," he says -- the 20% of customers who
contribute 80% of profits. To woo these customers, operators are dishing
out one-rate plans that waive long distance fees. But these plans only
make financial sense for the operators if they lead customers to call other
spots on those operators' networks. "When you have your own network,
you don't pay roaming fees and keep the money within your own pocket,"
says Ray Hodges, a wireless analyst with Technology Futures in Tampa,
Fla. "Also it's very desirable to end users to have a national provider so
they know what the billing is going to be" wherever they go. Bell Atlantic,
GTE and AirTouch all have established networks, which could turn profitable pretty quickly under a unified
pricing plan.
A tie-up with Vodafone could also give Bell Atlantic some short-term profits -- if the company is required
to sell specific spectrum licenses in certain cities. Bell Atlantic could fetch a pretty penny by auctioning
off a GTE license, let's say, in a city with AirTouch service, and then plow the proceeds into nationwide
promotions, billing and staffing. "They're in key markets where everyone is really having a hard time
meeting capacity demands," says Hodges.
The real prize for a huge network like Bell Atlantic, of course, rests at the intersection of all formats. Like
all carriers trying to master video, wireless and Internet technologies, Bell Atlantic wants to control the
current surge in demand for communications -- and wants to avoid being controlled by another carrier's
terms. Through lobbying campaigns in New York, Pennsylvania and Massachusetts, it's made no secret
of its hunger to offer long distance service nationwide. Could a nationwide wireless network help it sate
that hunger? "To the extent that they can have nationwide image and promotions, it helps," says
Hamilton.
Of course, the company could get a nationwide image by buying the Rose Bowl. There's a long-range
dimension to Bell Atlantic's wireless dreams. Within the next two years, see, wireless phones will be able
to carry high-speed data and some form of Internet connections. At the same time, Hamilton says, the
consumer wireless phone market looks likely to grow slowly once around 40% of the population
subscribes to a service. (Look around the next time you dine out. We're not that far away.) This will
intensify industry consolidation; Hamilton expects only five or six nationwide carriers, and no regional
carriers, in 2004. The competitive frontier will move from roaming to local calling and data.
"It's very possible that you or I might get local telephone service on a computer in the next two years,"
says Hamilton, which means that wireless providers need to focus on networks with enough spectrum
and enough cities to carry local telephone and Internet service. Bell Atlantic, which already offers
high-speed DSL service over its copper lines in the Northeast, could offer wireless local service wherever
its network could handle it.
Out of the glare of the Vodafone speculation, Bell Atlantic recently bought 10 idle megahertz of digital
radio spectrum. According to Hamilton, that new spectrum would help allow data and local telephony to
travel over the wireless network. An alliance with Vodafone looks like a solution for Bell Atlantic's wireless
business -- and wireless fixes may become a big part of its national solution.
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