Bell Atlantic-Nynex merger joins adjacent fiber plants

Jun 1st, 1996

Bell Atlantic-Nynex merger joins adjacent fiber plants

george kotelly

Forming the U.S.`s second-largest telecommunications company after AT&T, with $27 billion in revenues, the proposed merger of the Bell Atlantic and Nynex regional Bell operating companies is expected to interconnect the fiber-optic networks in 13 geographically contiguous northeast and mid-Atlantic states and the District of Columbia (see figure).

The internetworked communications corridor resulting from the merger will stretch from Maine to Virginia, covering approximately 25% of the nation`s population and serving one of the country`s busiest voice-traffic areas with more than 36 million access lines.

According to the report, "Fiber Deployment Update, End of Year 1994," by Jonathan M. Kraushaar of the Federal Communications Commission (FCC), Bell Atlantic and Nynex had deployed 1.8 and 1.1 million fiber-miles, respectively, by year-end 1994. The other five Bells had installed 4.95 million fiber-miles.

The merged company, to be known as Bell Atlantic, will reduce the number of regional Bells to five, coming just a few weeks after the proposed $17 billion SBC Communications Inc. buyout of the Pacific Telesis Group (see related story on this page). It is anticipated to continue the aggressive fiber-network deployment of the old Bell Atlantic. Long regarded as the outstanding regional Bell for installing high-speed fiber-optic networks, evaluating leading-edge communications technologies and trialing advanced video services, Bell Atlantic has assertively investigated both wireline and wireless methods for delivering multimedia communications cost-effectively.

According to Raymond W. Smith, former Bell Atlantic chairman and now chairman and chief executive of the new Bell Atlantic, the new company will deliver an array of one-stop shopping for customers, such as local and long-distance telephone, cable-TV and Internet services. Ivan G. Seidenberg, former Nynex chairman and chief executive and now vice chairman, president and chief operating officer of the new Bell Atlantic, maintains that this merger is about growth. The two companies already combined their cellular phone operations in 1994, and have partnered technology developments for enabling the delivery of video services over their fiber-optic telephony networks.

The proposed merger faces a long list of constraints, however, before the Bell Atlantic-Nynex combination becomes official. These obstacles include approvals from the respective boards of directors and shareholders, state public-utility commissions, the FCC and the Department of Justice, as well as a merger-completion time limit of 18 months.

Continued expansion

Industry analysts generally forecast positive effects for the continued expansion of fiber-optic deployment as a result of the merger. Some analysts, however, temper the fiber progress by citing the rapid acceptance and installation of supposedly less-expensive wireless and copper-based communications technologies. Others advise that despite the large size of the merged companies, market, service and network opportunities are still accessible for small, adept competitors. Moreover, they foresee other alliances, agreements and partnerships among Bell operating companies, long-distance carriers and cable-TV companies.

Says Gary Kim, senior vice president at Probe Research Inc., a Cedar Knolls, NJ-based market research company, "The merger will have minimal immediate impact on optical-fiber spending in the near term. Both companies are heavily committed to fiber-to-the-curb architectures for residential broadband services, and those deployments within densely populated regions will continue at about the same pace.

"At the same time, however, both companies will also continue to explore wireless delivery technology for the near and medium term. Long-term optical plant investments will hinge on several factors, including the ability to replicate the high residential demand for digital services that Bell Atlantic sees in its early fiber-to-the-curb deployments.

"Anticipated advances in pair-gain [copper] technologies, such as asymmetric digital subscriber line and high-speed digital subscriber line, are also crucial. If they are improved as much as proponents suggest, and pricing declines as much as carriers hope, the strategy of using wireless for video and pair-gain for high-speed data may well prove irresistible."

Improved operational efficiencies

Other analysts paint a much brighter picture for fiber. According to Associate Professor Rob Frieden, College of Communications at Pennsylvania State University, University Park, PA, "The Bell Atlantic-Nynex merger points to improved operational efficiencies and economies of scale. If the agreement plays out successfully, then the merger of fiber plants may constitute a key market factor; otherwise, a stronger, more-efficient and, perhaps, better-managed Bell Atlantic is just acquiring a weaker Nynex."

"The splicing of fiber-optic cables expands the merged companies` service footprint to one of the major markets in the country. The New York area is said to originate or serve as the gateway for more than 50% of the nation`s international communications traffic."

Professor Ira Jacobs, The Bradley Department of Electrical Engineering, Virginia Tech University, Blacksburg, VA, remarks, "There are several reasons why the fiber optics industry should benefit from the proposed merger of Bell Atlantic and Nynex. Competitive pressures will push technology deployment and service standards to the current peaks rather than to the valleys of the two companies. In particular, video service trials by Bell Atlantic should expand into the Nynex serving area.

"A major impetus for the merger is presumably to retain the local metropolitan business market now that long-haul carriers are free to enter this market. The new Bell Atlantic and would-be competitors will require facilities in place to meet demand quickly and with sufficient redundancy and rerouting capabilities to ensure reliable service in the presence of cable cuts and other facility outages.

"The large growth of long-haul facility installation following the 1984 divestiture might occur now in the local metropolitan market with the opening of this market to competition. But, if the existing telecommunications pie is just split among different service providers, then there will be no long-term benefit. Indeed, there would be a detriment, as the initial surge in facility growth will not be maintained in future years. The potential benefit is not that competition will cause a redivision of the pie, but that it will result in an increase in the size of the pie."

Ronald O. Brown, an independent information technology and enterprise network management consultant in Melrose, MA, echoes, "The new Bell Atlantic serves all of the commerce corridor of the U.S.--the northeast section of the country where there is the highest concentration of businesses. The merger should increase the range and quality of services offered these businesses. Now, a company with offices in Portland, ME; Boston; New York; Philadelphia; and Richmond, VA, will be able to deal with one vendor for services and maintenance."

Increased competition

"At the same time," says Brown, "the size of the merged companies will make it easier for competitive carriers to successfully find their niches. Therefore, competition will increase, prices will drop and usage will increase. The increased number of successful carriers, as well as the increased number of users, will mean more fiber, and associated terminal equipment will be required. Clearly, it is a win for the fiber industry."

Donald B. Dittberner, president of Dittberner Associates, a telecommunications management consultancy in Bethesda, MD, predicts, "The increased strength and coordinated focus achievable through this merger will benefit most telecommunications equipment suppliers, and in particular, the suppliers of optical-fiber systems. The new Bell Atlantic will surely put more fiber in [its] plant to improve service levels, counter competition and cautiously move forward on TV-delivery to the home.

"Of course, the higher degree of centralized procurement means bigger contracts, sharper competition and likely lower profit margins than before, but growth nevertheless. But change comes slowly in the land of the dinosaurs."

Larry Yokell, president of Convergence Industry Associates, a Boulder, CO-based telecommunications and cable-TV consultancy, says, "When the hype surrounding the Bell Atlantic-Nynex merger subsides, the combined firm`s engineers must meet the challenge of integrating existing fiber-network infrastructures from Maine to North Carolina. They will also be responsible for implementing a variety of emerging wireline and wireless technologies capable of supporting the broadband video, voice and data streams in one of the most densely populated regions of the country.

"Clearly, regardless of which technologies are used to upgrade networks, fiber-rich backbones will play a key role in hauling vast quantities of information between and within urban centers. Fiber`s reliability, versatility and high capacity virtually guarantee its heavy usage throughout the merged companies` territories."

Fred A. Joyce, president of Joyce Telecom Group, a competitive access marketing strategy consulting company in Colorado Springs, CO, anticipates some drawbacks with the alliance. "The merging of Bell Atlantic and Nynex raises the issue of whether bigger is necessarily better. Post-divestiture 2 [after the SBC Communications-Pacific Telesis merger] of [local exchange carrier] merger mania is foreseen as an unfavorable development for end-users.

"The local exchange carriers` contention that by merging operations they will somehow be in better shape to compete is evaluated as an incomplete notion. True, they will be able to hand off long-haul traffic and thus keep that revenue in-house. But the core, local-switched services business could be neglected more than it already is at several local exchange carriers.

"The new `Behemoth Bells` are expected to be less responsive to end-customers` requirements, and cause them to rapidly lose market share to new local-loop competitors such as long-distance carriers MCI and AT&T.

"Consequently, massive opportunities are expected to be available to new fiber-based local competitors to capture the big carriers` local end-customers` traffic. Nimble and generally more responsive competitive local exchange carriers, such as MFS Communications Co. and Teleport Communications Group, should also get a surge in business out of the [local exchange carrier] mergers and acquisitions."

According to Richard Tomlinson, president of Connecticut Research, a telecommunications consultancy in Glastonbury, CT, "Bell Atlantic has clearly been the most aggressive regional Bell in investing in networks. It is first in fiber-miles deployed, with an estimated total of 2.2 million fiber-miles at the end of 1995, and in the installation of advanced intelligent network technology. Although permission to offer packaged local and long-distance services may be three to four years away for the new Bell Atlantic, look for the construction of the network infrastructure required to exploit its regional advantage to begin at once."

Providing a perspective on the merger`s impact on equipment suppliers, Mark Lutkowitz, president of Trans-Formation Inc., a transmission equipment market research company in Birmingham, AL, comments, "Mergers like Bell Atlantic and Nynex coming together should speed up a shake-out of as much as half of the six North American major [Synchronous Optical Network] transport equipment suppliers. Vendor selections will be consolidated, strengthening the competitive positions of the leaders. It is conceivable that the others could drop out of the market by the turn of the century." q

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