Phone Merger Faces Hurdles Regulators, Unions Could Delay Marriage Of Bell Atlantic, Nynex

Bell Atlantic Corp. and Nynex Corp.’s $22 billion merger faces regulatory and labor hurdles that could prevent the new telephone powerhouse from making a speedy entry into a thriving marketplace.

The merger, approved by the companies this weekend, creates the nation’s second-largest phone company after AT&T Corp., serving 26 million customers from Maine to Virginia. It’s the second Baby Bell union since laws governing the $200 billion-a-year U.S. telecommunications market were overhauled in February.

But before the combined company can jump into that wide-open market, federal and state regulators must approve the merger. And union leaders, who oppose the companies’ plans to cut 3,000 jobs, could make a rocky transition, analysts said.

“This one will get through the regulatory hurdles, but it may face more difficulties” than the $16 billion combination of SBC Communications Corp. and Pacific Telesis Group unveiled April 1.

Based on the price paid for Nynex stock, the merger would be second largest in U.S. history after the $26.4 billion buyout of RJR Nabisco Corp. by Kohlberg Kravis Roberts & Co. in 1989.

The new company will have a market value of more than $50 billion, $3.1 billion in annual profit, $27.8 billion in sales. The companies plan on cutting 3,000 jobs, mostly non-union positions, out of their combined work force of 133,000 employees.

The new Bell Atlantic will offer one-stop shopping for consumers and businesses, providing local, long-distance, and wireless phone services as well as cable-TV, entertainment and information services.

“This is the most informationintensive piece of real estate on the planet,” said Raymond Smith, chairman and chief executive of Bell Atlantic, who will lead the new company. “We will be able to increase our revenue, reduce our costs, and improve our service.”

AT&T, which is planning to offer nationwide local phone services and compete head-to-head against the Baby Bells, immediately questioned if the Bells are teaming up to limit the impact of the new telecommunications law.

“It’s hard to see how new competition promised by the Telecommunications Act can be attained if existing monopolies simply combine into larger ones,” AT&T said in a prepared statement.

MCI, the nation’s No. 2 long-distance company, asked state regulators, the Justice Department and the Federal Communications Commission to examine the Bell mergers.

“We are concerned over what appears to be a growing trend toward consolidation of the monopoly power of the regional Bell operating companies,” said Gerald Taylor, president and chief operating officer of MCI, “This is not the opening of the local markets called for under the new telecommunications laws.”

Bell Atlantic’s Smith disagreed. “The fact that AT&T and MCI have come out against this should tell you that this is absolutely procompetitive,” he said.

By combining, Bell Atlantic and Nynex will single-handedly eliminate their biggest potential competitor in the local phone market, analysts said. So the Bell Atlantic-Nynex merger is expected to come under close scrutiny by federal and state regulators because the two companies dominate the nation’s busiest telecommunications market.

“They Bell Atlantic-Nynex markets are essentially one market already,” said Barry Sine, an analyst at SBC Capital Markets. “They already have a stranglehold on telephone service in the New York area.”