- GTE Corp. will
buy Internet service provider BBN Corp. for $616 million in a
bid to transform itself from a local telephone company into a
national provider of integrated telecommunications services.
GTE also said it entered a strategic alliance with Cisco
Systems Inc. to develop data and Internet services and said it
would buy a national, state-of-the-art fiber-optic network from
Qwest Communications.
GTE Chief Executive Charles Lee said the company's goal was
to become a "market leading telecommunications" company by 2001
with annual revenue of about $36 billion. GTE earned $2.8
billion on revenues of $21.3 billion last year.
Industry analysts said the transactions were meant to
transform Stamford, Conn.-based GTE into a powerhouse selling
long-distance services and Internet access.
"We really think of it as a change in the overall direction
of the company," said Bear Stearns' Bill Deatherage.
"They are going from concentrating on their local areas
into addressing a nationwide market." He said they were adding
capacity to serve business customers with data, Internet and
long distance services.
GTE, one of the largest publicly held telecommunications
companies in the world, already offers local and wireless
service in 29 states and long-distance service in all 50
states.
GTE said its purchases from Cisco, the world's biggest
maker of computer network equipment, could exceed $1 billion
over the next five years.
But the aggressive plans to develop a high-speed national
network for transmitting voice and data will put a crimp in
GTE's earnings in the short run.
"We are making an investment," Lee told reporters. "In
3-1/2 years, we will be back to the same level (of earnings)
and we will grow at around 15 percent."
The other investment GTE is making is its purchase of
"dark" fibers in privately held Qwest Communications' national
network that will give GTE a fiber optic network that stretches
from the Atlantic to the Pacific by 1998.
GTE would not say how much it was paying Denver-based
Qwest, which is closely held.
"It is like buying a railroad track and they are buying
their own locomotive and cars," said a Qwest spokesman. Qwest
will run its own long-distance services parallel to GTE's.
The network will be completed in late 1998. One analyst
estimated GTE is spending about $485 million on the Qwest deal.
GTE said it would pay $29 a share for BBN -- a 28 percent
premium over the stock's $22.625 closing price Monday. Under
the deal, approved by the boards of both companies, GTE will
start a cash tender offer for BBN soon.
Cambridge, Mass.-based BBN offers Internet access and
network security, consulting and systems integration services.
GTE said the BBN acquisition will "jump-start" its chances
of winning contracts to provide enhanced Internet services for
large businesses.
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