Merging Tools, Emerging Companies
Telecom options proliferate, then blend

For a number of years, I made it a practice to ask my telecommunications students how many telephone companies offered local service in Kentucky. Most students were aware that there were at least two – BellSouth and GTE. A few students, mostly hailing from rural areas of the state, were aware that there was at least one more, since their homes were served by a small independent phone company. Then I would amaze and astonish them by telling them that there were 20 phone companies operating in Kentucky - the big two and 18 other independents that serve anywhere from a few hundred to several thousand customers.

Nowadays, I no longer have the satisfaction of watching their jaws drop at the notion of so many phone companies. They are all aware that there are close to a blue million phone companies in the world. While that figure may be a slight exaggeration, it is literally true that there are hundreds of options for phone service in the Bluegrass. It’s also true that the telecommunications industry is on the minds of the citizens of the state. Last year, over 65 percent of all citizen inquiries to the Kentucky Public Service Commission concerned telecommunications. What accounts for the relatively sudden proliferation of phone companies and the apparent surge of interest on the part of consumers? One word: wireless.

Aside from the CD and the CD player, cellular phones and PCS devices – which combine phone service with e-mail, paging, and Internet access – are the most popular personal electronics of the last few years. Beyond their convenience for soccer moms and college students, they have become the most ubiquitous electronic aid to the business community of the state. Encounter, for instance, a group of account executives or a meeting of the traveling sales staff and you will likely uncover a cell phone on practically every one of them. Recognizing this is the case, major telecommunications companies, both old and new, are undertaking mergers and strategic alliances in order to provide services designed to especially benefit the business community and the business traveler.

Two of the most notable and largest mergers currently taking place or pending approval involve the previously mentioned big two in Kentucky – GTE and BellSouth. In early April, BellSouth and SBC (formerly Southwestern Bell Corporation) agreed to merge their North American wireless operations. The new company will serve more than 16 million customers and enjoy annual revenues of more than eight billion dollars. The benefit of such a merger for the business user is cost savings – and the larger the business, the greater the savings. Mergers like this one help the combined companies achieve economies of scale that result in lower prices and help eliminate the roaming fees that arise when customers of one carrier use the systems of other carriers.

About a day or two before the announcement of the BellSouth-SBC merger, GTE made public its plans to merge with Bell Atlantic. GTE, the largest independent (non-Bell System) phone company, is as large as any of the former regional Bell operating companies, so this is another merger that will result in a huge company. The new company, which will be known as Verizon (rhymes with "horizon"), will be even bigger, in terms of customers, revenues and geographic scope, as a result of its already-approved merger with Vodafone AirTouch. The company will boast 20 million wireless customers and that figure that will undoubtedly increase when General Motors deploys its OnStar communications systems in the new line of automobiles coming out in the fall. GM will be the largest single customer of the newly created Verizon.

John F. Clark (johnclark@lanereport.com) is a visiting assistant professor of the University of Kentucky School of Journalism and Telecommunications.

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