Bell Atlantic, GTE Sacrifice Backbone

Potential telecom partners Bell Atlantic
and GTE Corp. Friday officially
offered to divest most of GTE’s Internet business in order to obtain
regulatory approval for their merger.

Last year, Bell Atlantic (BEL)
proposed to resolve the regulatory issue by placing the Internet business
in a trust, but the Federal Communications
said the plan was insufficient.

Under the new proposal, the Internet backbone and related data business of
GTE Internetworking would be transferred
to a corporation owned and controlled by public shareholders and
operated independently of the merged Bell Atlantic-GTE (GTE).

The merged company would retain 10 percent equity interest as permitted by
the Telecommunications Act of 1996. The proposal includes an option that
the merged company maintain the right to buy back the unit in five years,
if Bell Atlantic receives FCC permission to merge.

Tom Tauke, Bell Atlantic senior vice president, said the divestiture would
produce a new publicly owned company and would fulfill regulatory

“Under this proposal the ownership and control of GTE Internetworking will
be transferred to new shareholders through an initial public offering,”
Tauke said. “This addresses the long distance issue in a way that lives up
to both the letter and the intent of the 1996 Telecommunications Act.”

The FCC routinely requests public comment on the filing before taking
further action. The Justice Department
approved the merger last year, but the FCC has delayed deal because of the
Internet long distance issue.

The merger would reportedly create the largest U.S. local phone company
with combined revenues of over $58 billion in annual sales.

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