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The Federal Communications Commission June 16 unanimously approved Bell Atlantic’s $65 billion buyout of GTE Corp., but the New York telecom had to agree to spend at least $500 million trying to compete for local phone business outside its home region. The FCC also accepted Bell Atlantic’s plan to spin off GTE’s Internet “backbones” – the high-speed lines that carry data traffic over long distances – into Genuity, a Burlington, Mass. company GTE bought in 1997. Bell Atlantic will sell Genuity shares representing 20% of the company’s value through an initial public offering expected to raise $2.1 billion to $2.6 billion. Bell Atlantic and GTE said the FCC approval puts them on track to close ahead of a June 30 walkaway deadline. The decision comes almost two years after Bell Atlantic and GTE first announced merger plans, forming Verizon Communications. From the start, the deal was wracked with legal problems, mainly because Bell Atlantic is prohibited from selling long distance service until it opens its home territory of 13 states and the District of Columbia to competitors. The final order contains just one surprise: Verizon must try to attract local telephone customers from other Baby Bells’ core regions over three years. Verizon must spend $500 million trying to attract out-of-region customers-or less, if it can sign up at least 250,000. If Verizon fails, it would have to make a “voluntary payment” of $750 million to the government. “This is throwing Brer Rabbit into the brier patch,” said Mark Cooper, director of research at the Consumer Federation of America. The requirement is similar to one found in last year’s order approving the merger of San Antonio-based SBC Communications Inc. with Ameritech Corp. of Chicago. There, SBC agreed to pay more than $1 billion unless it enters at least 30 out-of-region markets. The order reflects the FCC’s growing preoccupation with competition between the Baby Bells-lacking despite repeated efforts over two decades to stimulate competition. In 1996, Congress passed legislation that, among other things, barred Baby Bells from selling long distance until they open their local markets to competitors. The FCC later interpreted that to mean Baby Bells could not sell long distance Internet service, including owning backbones. The Genuity spinoff is structured to work around that provision. Verizon will keep just 9.5% of Genuity, though it will keep an option to buy back 70% more if it wins permission to sell long distance within five years. Critics objected to the option because Verizon is all but certain to exercise it. Verizon will benefit indirectly from the sale of services it cannot currently sell, they argued. Bell Atlantic, however, amended the plan last week to assuage those concerns. Through a complex formula, Verizon must give shareholders any increase in Genuity’s value coming from customers in states where Verizon cannot sell long distance. Verizon also agreed to give the government much of the increase in Genuity’s value, should Verizon fail to win approval to sell long distance within five years. One opponent was not satisfied. “It’s very surprising Verizon is allowed to keep any of its stake,” said David Butler, a Consumers Union spokesman. A spokesman for AT&T Corp., which also had criticized the plan, said the company “will review the decision carefully.” FCC officials said the agency has yet to receive any appeal notice. Copyright �2000 TDD, LLC. All rights reserved.

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