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Phone mergers to cut rates
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July 27, 1998: 1:51 p.m. ET
Analyst says telecom alliances will produce lower prices for consumers
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NEW YORK (CNNfn) - What's going on in the telecommunications industry, anyway?
Bell Atlantic Corp. and GTE Corp. are said to be talking about a merger that could be valued at $52.5 billion to $55 billion, according to published reports Monday.
And Sunday, AT&T Corp. and British Telecommunications announced they are creating a $10 billion joint venture to provide businesses with international telephone service.
Robert Wilkes, telecom analyst with Brown Brothers Harriman, joined "Business Day" Monday morning to discuss what's going on in the telecom industry, and what effect the mergers will have on consumers.
Here's a partial transcript.
DEBORAH MARCHINI, CNN ANCHOR: The reports this morning, first of all, are about a pairing up between Bell Atlantic (BEL) and GTE (GTE). Are they credible to you?
ROBERT WILKES, TELECOM ANALYST, BROWN BROTHERS HARRIMAN: I think they are reasonably credible. There had been speculation for some time that British Telecom might hook up with GTE. I think that this alliance that BT is forming with AT&T (T) potentially means that that will not happen. So GTE potentially would be looking for another potential partner.
JOHN DEFTERIOS, CNN ANCHOR: What's emerging is that everybody is talking behind the scenes for a long, long time, looking at alliances because the industry is moving so quickly. Is this going to continue, then?
WILKES: Yes, I think so. There has been the view that potentially we will wind up, at least in the U.S., with three or four mega-players. And, as each merger or alliance takes place, there are fewer and fewer dance partners, if you will, for the remaining companies to hook up with. So I think we're moving in that direction.
MARCHINI: The consolidations have, in some cases, different motivations. The AT&T deal with British Telecom is predominantly aimed at serving business customers. Presumably a deal between Bell Atlantic and GTE would be aimed at residential customers, right?
WILKES: Broadly, yes.
MARCHINI: What role is the Internet playing in all of this?
WILKES: Well, I think the Internet is a major opportunity for all of these carriers, as users move from plain old telephone service to using multimedia, and the companies are trying to figure out how best to utilize it.
MARCHINI: Bottom line here: Are we looking at mergers that are going to create less competition or more competition?
WILKES: Well, I think it depends on how you look at it. I think, in the case of BT and AT&T, what that will do will be to drive down accounting rates in international markets, which will tend to stimulate volume growth, and that will be a good deal for consumers. Domestically, if you come into a situation where you're going to have very few players, potentially it could be anti-competitive, but thus far, in the provision of local telephone service, there has been little competition.
And the SBC Communications (SBC)-Ameritech (AIT) deal, which was previously announced, promised to go in and attack Bell Atlantic and other markets. So if Bell Atlantic is going to be attacked and they don't have a counterattack strategy, they're going to want to form some sort of alliance.
So, I guess in the short run at least, the consolidation among the local carriers can lead to more competition.
DEFTERIOS: In this joint venture between BT and AT&T, Michael Armstrong wanted to have control of the architecture. He likes to have control of anything he jumps into. Did he get enough here with this separate group that's set up?
WILKES: Well, I think he wants control of the architecture and a low-cost position in the industry. And this venture will move him much farther in that direction in the international markets in servicing multi-nationals than he is so far. There are going to be other things they are going to need to do. They are going to have to figure out how to provide service outside the U.S. and Europe, where the BT and AT&T are the strongest. But it's a major step in that direction.
DEFTERIOS: And it sounds like he's not going to stop with just Europe. KDD says they're going to talk with AT&T and BT. So Asia is the next target for these groups.
WILKES: Well, AT&T has two ventures already. Unisource and World Partners. Those are to be dissolved. But relationships with the participants in those ventures are going to be repositioned, and that's where they are going to be moving, he mentioned yesterday, starting today. 
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AT&T
Bell Atlantic
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