[GTE]
<<<<< Pat's voice not at all what I expected, it was good to hear you.>>>
Pat, you sound much thinner than I had imagined. You're not going hungry are you? Have a happy week-end. :-))
Steve
GTE COMES TO LIFE
Bid for MCI puts phone firm on the map
Jonathan Marshall, Chronicle Staff Writer
California's ''other'' phone company is finally stepping out of the backwater into the front ranks of U.S. telecommunications giants.
Connecticut-based GTE Corp., which serves about a fifth of California residents, has long been dismissed as a sleepy, backward phone company. It serves a patchwork of mostly small, rural or suburban communities -- the ones AT&T ignored while forming its monopoly in the early part of the century. But GTE's $28 billion, all-cash offer for MCI Communications last week has made it a real contender in the global telecom sweepstakes. With a recent series of bold acquisitions and partnerships, it has become one of the country's first full-service carriers.
GTE already serves customers in 29 states and generated revenues of more than $21 billion last year. Combining its far-flung local phone network with MCI's long-distance operations would pull in more than $40 billion in revenues. It would control 21 million local lines, 24 million long-distance customers, 5 million wireless users and have a commanding position in the Internet service business.
''Ten years from now we'll be one of the leading global firms competing for telecommunications services to customers around the world,'' said Kent Foster, president of GTE.
Belying its stodgy reputation, GTE this year spent $465 million to buy into an ultra-modern fiber-optic network built by Qwest Communications Corp. in Denver. This will give GTE a super-fast highway for voice and data services across the country.
And it paid $616 million for Cambridge-based BBN Corp., one of the country's premier suppliers of Internet and data services to corporate America, including AT&T, Intel and Hewlett Packard. GTE also pledged to spend hundreds of millions of dollars on the latest networking equipment from Cisco Systems and other suppliers.
GTE plans to create the world's fastest Internet backbone, said Foster. Within a few years, he predicted, the same backbone will be used to carry voice traffic, digitally coded to travel over the Internet more cheaply than over traditional phone networks.
''Their overall strategy is quite brilliant,'' said Barry Sine, an analyst at SBC Warburg Dillon Read. ''They are accumulating a critical set of assets needed to be one of the major players in this industry.''
GTE says it was the first telephone company to offer, on one bill, a complete bundle of services including local, long distance, wireless and Internet, giving it a key competitive advantage. Its geographic breadth and diverse strengths set it apart from most other phone companies:
-- Its wireless division serves 4.3 million customers in 17 states, including the Bay Area, making it the fifth largest wireless service provider in the United States. GTE's Airfone service, which operates on nearly 2,000 planes, has handled more than 75 million calls since it began three years ago.
-- Since it began offering long- distance service last year in all 50 states, GTE has already signed up 1.5 million customers.
-- GTE had $2.8 billion in revenues last year from international operations, including phone companies in Canada, the Dominican Republic and Venezuela. It has wireless ventures in Argentina and Taiwan and now runs a paging service in China.
-- The company also has cable TV systems serving about 40,000 customers in Ventura County and the Tampa Bay area in Florida. It offers the nation's only interactive TV service, which lets people shop, bank, play games and prepare for the Scholastic Aptitude Test at home. By 2004, the company plans to offer video in 66 markets with 7 million people.
-- In less than a year, GTE has become a mid-size Internet service provider, with 200,000 customers. It also offers high-speed, two-way Internet access to cable customers for about $50 a month.
One of GTE's greatest strengths, however, is its legal and lobbying clout, thanks in no small part to the savvy of its chief counsel, former U.S. Attorney General William Barr.
Barr helped persuade Congress, in the 1996 Telecommunications Act, to give GTE the right to offer long-distance service, while regional Bell companies remain barred from that market until they prove to federal regulators that their local markets are fully open to competition.
Barr has also filed successful lawsuits blocking decrees by the Federal Communications Commission aimed at making GTE and other local phone companies more open to competition.
These victories have competitors fuming. AT&T and MCI, for example, complain that GTE resisted letting them into its local markets, contrary to the intent of the 1996 act.
In California, GTE began switching customers over to AT&T only this month, and at a rate of only 10 per day, said Lois Hedg-peth, president of AT&T's Pacific region. She said GTE is about a year behind Pacific Bell in opening its markets.
''GTE is world class at obstructing local competition,'' she charged. ''Getting them to open up their markets is as hard as getting a 2-year-old to sit still for a day.''
Larry Cox, a spokesman for GTE, denied the accusation. ''These competitors just aren't ready to roll out their services to market,'' he said. ''We haven't turned down any AT&T orders for customers.''
GTE also has a bad reputation to live down with many local customers in California. ''Historically it's had terrible service quality,'' said Regina Costa, an analyst with The Utility Reform Network, a consumer organization based in San Francisco.
But GTE's Cox said that impression is outdated and reflects an era when the company's reliance on antiquated gear did indeed set it apart from more progressive companies.
In the late 1980s, he said, GTE invested $5 billion in California to leapfrog Pacific Bell with the latest technology. By 1995, he said, GTE was the only phone company in California to boast a 100 percent digital network. Digital systems are the state of the art for reliability, quality and security.
Bay Area residents are likely to hear more from GTE as it expands outside its traditional service territories, which are concentrated mostly in Southern California.
''Northern California is one of the markets we are targeting for expansion,'' said GTE's Foster. ''We intend to offer a package of local, long-distance, wireless, Internet and other services.''
GTE has already bid for many government and small-business customers in Pacific Bell territory, said Todd Eliason, president of Business Markets for GTE Communications Corp., based in Dallas.
GTE has won numerous emergency 911 contracts with public agencies, including a recent five-year, million-dollar deal with the Oakland police department. And it won a prize Internet service account for a media lab in Beverly Hills run by Creative Artists Agency and Intel Corp.
It is also competing to provide telecommunications services to several major California universities and the state of California.
GTE still faces significant challenges as it struggles to join the premier ranks of telecommunications providers. In the long-distance market, for example, it merely resells service prodvided by WorldCom -- the company that's bidding against GTE for MCI.
And GTE's wireless operations are flagging, said Michael Elling, an analyst at Prudential Securities. Customer growth has slowed dramatically since new competitors, such as PCS companies, have entered GTE's cellular markets. ''They are proving they don't know how to compete,'' he said.
Finally, GTE's proposed MCI acquisition raises questions of how two very different corporate cultures could be joined.
If MCI's enrepreneurial zest rubs off on GTE, the combination would be a success. But if GTE's less-competitive culture dominates, the merger could be a bust.
''It would take incredible energy and coordination to bring those two companies together,'' said Steve Koppman, an analyst at Northern Business Information.
The takeover would also load GTE with $54 billion in debt. Moody's Investors Service last week lowered its rating on GTE's long-term debt and preferred stock a notch.
But some analysts say those are only temporary blemishes on a bright picture.
''Raising their debt is troublesome, but with some patience, GTE will satisfy all the rating agencies that it is worthy of increases'' in debt ratings, said Axxel Knutson, an analyst at Montrose Capital Management in New York. ''MCI substantially increases the long-term merit of GTE. GTE has the potential for extraordinary earning power if they get their act together.''
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