Baby Bells plan pounds 15bn merger after US deregulation

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Two telephone Baby Bells, Bell Atlantic and Nynex, yesterday announced plans to combine forces in the biggest telecommunications merger ever seen in America. The deal, which still faces the scrutiny of shareholders and of federal and state-level regulators, would be worth almost $23bn (pounds 15bn), making it the second-biggest merger of any kind in US corporate history, after the 1989 takeover of RJR Nabisco by Kohlberg Kravis Roberts for $26.4bn.

The new company, to be called Bell Atlantic and based in New York, would be the second-largest telecommunications company in the US behind AT&T and the fourth-biggest world-wide. It would have a global workforce of 133,000 employees and boast combined revenues, based on 1995 figures, of $27.8bn.

The way for the merger was opened by the passage through the US Congress two months ago of a sweeping telecommunications deregulation bill that lifts many of the barriers to competition between long-distance and local telephone providers and cable companies.

By combining, the companies hope to contend with new competition in their local markets and to break into the lucrative long-distance sector, both in the US and internationally. Together, they cover an area densely populated by business and private customers, from Maine to Virginia and taking in cities such as New York, Washington DC and Philadelphia.

"This is the most natural partnership in the world," Roland Smith, the chairman of Bell Atlantic, declared at a news conference. "This a merger of equals in every sense of the word."

Under the deal, Mr Smith, 58, will run the new Bell Atlantic for the first year, after which control will begin to transfer to Ivan Seidenberg, 49, the chairman of Nynex.

The Baby Bells were created in 1984 when the US government forced the break-up of the old AT&T - or Ma Bell. Until this month, there were seven Bells across the US. With this deal and the $16.7bn fusion announced two months ago between Telesis Pacific of California and SBC Communications, the number is set to decline to five.

Analysts had widely anticipated yesterday's announcement and by-and-large declared it desirable and even inevitable. The Bell Atlantic deal "is the one that everyone thought made sense," said Scott Cleland of the Washington Research Group.

Navigating the regulatory hurdles may not be simple, however. Federal and state regulators will consider the claims of consumer groups that combined, the two Bells will have too much power to set rates in the North- east region. "If there were any two Bell companies that were in a position to go in and compete with one another, because they have known brands across regions, it would be Bell Atlantic and Nynex," Bradley Stillman of the Consumer Federation of America contended.

"Instead, we have two entrenched monopolies joining forces to create one monopoly."

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