Gte-Mci Link Would Change Telephone Landscape Proposed Deal Faces Intense Scrutiny From Fcc, Justice Department

If GTE’s $28 billion bid for MCI is successful, the combined entity could alter the phone business in a far more profound way than the recent spate of proposed mega-marriages between telecommunications companies.

But the big emphasis is on the “if,” industry experts said Thursday.

Unlike previous combinations, an MCI-GTE would be strong across a range of businesses, from long-distance to local phone service to Internet access. And that could spur others to merge into behemoths, with the aim of selling lucrative packages of all-in-one services to consumers and businesses.

Because of that far-reaching power, GTE Corp.’s bold all-cash offer for MCI Communications Corp. is likely to face tough scrutiny by the Federal Communications Commission and federal antitrust regulators - possibly more than WorldCom Inc.’s rival $30 billion all-stock bid two weeks ago. It also would face strident protests from Baby Bell companies that now are prevented by federal rules from entering the long-distance business.

“I think it’s a big ‘if,”’ said Christine Heckart, a Tulsa, Okla.-based telecommunications consultant with TeleChoice Inc.

“Once the FCC approves GTE-MCI, it really opens the door. And I think it’s maybe a can of worms they don’t want to open the door to.”

The FCC already has expressed its opposition to marriages between long-distance companies and big regional phone carriers. This summer it zapped AT&T Corp.’s hopes of merging with SBC Communications Inc., a $17.8 billion regional phone company formed by the marriage of Southwestern Bell and Pacific Telesis Group.

AT&T and SBC had been in discussions when FCC chairman Reed Hundt publicly blasted the proposal, saying it would stifle competition in areas served by both companies.

GTE, a unique hybrid of local- and long-distance services, doesn’t face the same restrictions that shackle the nation’s five regional Baby Bells, which are barred from getting into the long-distance business until they open their local-phone markets to rivals.

The FCC this year has rejected proposals to enter the long-distance business by SBC and Ameritech Corp., which sells local phone service in the Midwest. BellSouth is preparing a third proposal to sell long-distance service.

The rules were intended to prevent the same abuses of monopoly power that resulted in the breakup of AT&T Corp. in 1982, fracturing it into the Baby Bells and the long-distance Ma Bell.

Because they are hamstrung, several regional phone companies on Thursday signaled their opposition to a GTE-MCI marriage.

“We’ve reacted with alarm,” said Sid Boren, BellSouth’s executive vice president in charge of corporate planning and development.

“It’s a threat to us and we’ve also reacted with some indignation that another company situated very much like we are could put together some services including long distance, which we cannot do.”

Still, the Baby Bells insist they can go it alone in breaking into the long-distance market and don’t need to merge with a long-distance company. Unlike long-distance carriers, which must build new networks or lease lines from local companies to break into the local markets, local companies can assemble long-distance service from their existing networks.

A GTE deal could face more antitrust concerns than WorldCom’s offer. GTE would create a company with nationwide strength in phone services sold to consumers. A combined WorldCom-MCI would be stronger in business telecommunications services.

“The average guy on the street would see much more of an effect” from a GTE-MCI deal, said Kevin Gooley, an analyst with Standard & Poor’s.