Cybertelecom :: Bell Atlantic / GTE Merger

FEDERAL COMMUNICATIONS COMMISSION APPROVES BELL ATLANTIC-GTE MERGER WITH CONDITIONS. Required spin-off of GTE's Internet Assets Increases Incentives for Bell Atlantic to Swiftly Open its Local Phone Territory to Competitors. News Release. Adopted: June 16, 2000. Dkt No.: 98-184.

GTE CORPORATION AND BELL ATLANTIC CORPORATION. Granted consent to transfer control of FCC licenses and lines in connection with their proposed merger. Dkt No.: 98-184. Action by the Commission. Adopted: June 16, 2000. by MO&O. | Word |(FCC No. 00-221). CCB

On January 27, 2000, Bell Atlantic Corporation and GTE Corporation (the Applicants) submitted supplemental materials in connection with their joint applications under sections 214 and 310(d) of the Communications Act, 47 U.S.C. 214 and 310(d), requesting Commission approval of the transfer of control to Bell Atlantic of licenses and authorizations controlled or requested by GTE or its affiliates or subsidiaries. Since that time, the Applicants have made further submissions that contain revisions to proposals made by the Applicants in their January 27th filing. We seek comment on the Applicants' further submissions, in particular the following:

1. Internet Backbone Spinoff. The Applicants today submitted a revised proposal for transferring the Internet backbone and related assets of GTE Internetworking Incorporated (now known as Genuity Incorporated) to a separate public corporation (referred to herein as "Genuity") that would be owned and controlled by public shareholders and operated independently of the merged Bell Atlantic/GTE entity. Under the revised proposal, after an initial public offering of Class A common stock, the merged Bell Atlantic/GTE will receive shares of Genuity Class B stock that will have less than 10% of the voting rights and right to dividends or other distributions, along with a potential right to convert its interest to up to 80% of Genuity in accordance with certain conversion principles outlined in the filing.

Under those conversion principles, the proposal states that the merged entity's right to convert arises only after it eliminates applicable section 271 restrictions representing 50% of Bell Atlantic's total in-region access lines within five years of the merger's close. Prior to achieving the 50% threshold, the merged entity will be entitled to no more than a 10% interest in Genuity.

Assuming the 50% threshold is met, under the proposal, the merged entity may exercise its conversion rights for the purpose of immediately bringing Genuity's business into compliance with section 271 provided that it has eliminated section 271 restrictions as to at least 95% of total Bell Atlantic lines, and the arrangement conforms to a revenue restriction contained in an agreement between the merged entity and Genuity. If the merged entity sells the conversion right before achieving a 95% section 271 threshold, it would receive none of Genuity's appreciation (other than on the up-to-10% interest), and would receive the value of the merged entity's initial investment plus a rate of return based on the S&P 500.

In addition to revising the conversion principles, the Applicants modified certain other aspects of the proposal, including the investor safeguards and structure of Genuity's Board of Directors. . . . .

2. We first conclude that the Applicants’ proposal to spinoff GTE’s Internet backbone and related assets into a separate public corporation is sufficient to demonstrate that completion of the merger would not result in a violation of section 271. Under the transaction we approve herein and that the Applicants must complete prior to merger closing, the Applicants will retain shares that represent less than 10 percent of the spun-off entity and that contain a conditional conversion right. Applying a three-part test, we conclude that the merged firm will not own an equity interest or the equivalent thereof of more than 10 percent of Genuity. We further find that the merged firm will not control Genuity, nor will it be providing interLATA services through its post-spin-off relationship with Genuity.

5. Compliance with Section 271. Because GTE will transfer its Internet backbone and related assets to a separate public corporation (Genuity) prior to merger closing, the proposed transaction will not result in a violation of section 271 of the Act. The merged firm will retain shares of Genuity stock that will comprise less than 10 percent of Genuity’s voting, dividend and distribution rights. These Class B shares will contain a contingent right that enables the merged firm to convert the shares into additional shares of up to 80 percent of Genuity only if it obtains section 271 authority with respect to 95 percent of Bell Atlantic’s in-region access lines within five years of the merger’s closing. We conclude that this conditional conversion right is not an equity interest or its equivalent within the meaning of the Act.

26. As an initial matter, we first consider whether the Applicants’ proposed transaction would result in a violation of the Communications Act. Section 271 of the Act prohibits a Bell operating company or its affiliate from entering the in-region, interLATA market unless and until the BOC demonstrates that its local market is open to competition by satisfying a checklist of market-opening and other requirements set forth in the statute.74 Bell Atlantic is comprised of several Bell operating companies,75 and, to date, has obtained section 271 authorization only in New York.76 GTE is not comprised of any BOCs and thus, prior to the contemplated license transfer application, was not subject to section 271’s restrictions. At the time of the Application, GTE in fact provided interLATA services nationwide through various subsidiaries.

28. Genuity (formerly GTE Internetworking), a wholly-owned subsidiary of GTE, is a facilities-based Internet infrastructure supplier offering a comprehensive set of managed Internet access, web hosting and value-added e-business services, such as virtual private networks for secure data transmission and security services.80 It operates a global network consisting of domestic broadband fiber optic cable, points of presence where Internet access is provided to end users and secure data centers. With its extensive network and customer base, Genuity is commonly regarded as a Tier I Internet backbone provider.

29. Under the Applicants’ spin-off proposal,81 GTE will transfer substantially all82 of Genuity’s nationwide data business to a separate public corporation. Before merging with Bell Atlantic, GTE will exchange its stockholdings in Genuity for shares of a new class of common stock, Class B common stock. Through an initial public offering (IPO) conducted prior to closing the merger with Bell Atlantic, public shareholders will purchase shares of Genuity Class A common stock initially carrying 90.5 percent of the voting rights and the right to receive 90.5 percent of any dividends or other distributions.83 The merged Bell Atlantic/GTE’s Class B shares will carry 9.5 percent of the voting rights and the right to receive 9.5 percent of any dividends or other distributions, along with a conversion right and certain investor safeguards.84 Subject to satisfying certain conditions, the Class B shares will be convertible into newly-issued shares representing 80 percent of the shares of Genuity outstanding immediately after the IPO.

Comment Sought on Further Submissions in Connection with the Proposed Merger of Bell Atlantic and GTE [Word97 | Acrobat]. DA 00-959.4/28/00 Comments on Applicants' further submissions due: May 5, 2000 Responses on Applicants' further submissions due: May 9, 2000

Released: January 31, 2000. COMMISSION SEEKS COMMENT ON SUPPLEMENTAL FILING SUBMITTED BY BELL ATLANTIC CORPORATION AND GTE CORPORATION.

Press Release COMMENTS INVITED ON GTE COMMUNICATIONS CORPORATION TO DISCONTINUE PROVISION OF DATA SERVICES NSD FILE NO. W-P-D-454.SECTION 214 APPLICATION APPLICANT: GTE COMMUNICATIONS CORPORATION - Contact: Network Services Division: Al McCloud at 2499, email: mmccloud or Marty Schwimmer at 2320, email: mschwimm, 0484. Released: March 2, 2000. Comments: March 24, 2000. FCC CCB Current Proceedings Page.

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