February 2, 1996

On Wall Street, Deregulation Equals Flurry of Deals

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    NEW YORK -- Nowhere has the call for telecommunications competition sounded louder than on Wall Street. As Congress finally passed its landmark communications bill Thursday, telephone companies and their investment bankers began suiting up for a flurry of deals that they said would flow from the wholesale deregulation of the industry.

    Shares of most telephone companies have risen strongly this week amid growing expectations of the bill's passage. For a few companies, the air of expectation gave way to lip-smacking anticipation.

    MFS Communications, a company based in Omaha, Neb., that offers alternative telephone access to local business customers, saw its stock jump $5.375 Thursday, to $65.875, on rumors that the company would be acquired by AT&T or another long-distance carrier.

    Analysts said that owning MFS would make sense for AT&T, MCI Communications or another long-distance carrier because it would allow the companies to bypass the regional Bell companies' local monopolies to offer local phone service.

    Royce Holland, president and chief operating officer of MFS, said: "The long-distance carriers clearly need a strategy to get into the local market. And we serve more of our customers with fiber than any other telephone company. So you can put one and one together and come up with four."

    The Bell companies are also hot prospects for possible deals. As they rush to get into the long-distance market, analysts predicted, several of the companies will merge with each other, or even create multiple alliances, to extend their reach.

    "Every company wants to be able to offer a national package of services," said Bill Deatherage, a telecommunications analyst at Bear, Stearns. "They'll make up for any deficiencies by doing combinations."

    Indeed, on Wednesday Bell Atlantic was said to have intensified its long-rumored talks with Nynex about merging the companies to create an East Coast telephone goliath stretching from Maine to Virginia.

    James Cullen, vice chairman of Bell Atlantic, declined to comment about Nynex, but he said, "As soon as Clinton signs this bill, a lot of companies will begin talking to each other about partnerships, joint ventures, alliances or mergers."

    An investment banker familiar with both companies said the negotiations had grown more earnest in recent weeks as the passage of the telecommunications bill seemed imminent.

    Shares of Bell Atlantic rose $1.25, to $68.875, in heavy trading on Wednesday, before registering a more modest gain of 12.5 cents Thursday, to $69. Shares of Nynex, which rose $1, to $53.50, on Wednesday, added another 12.5 cents Thursday, to $53.625.

    Apart from any possible deal, Cullen said Bell Atlantic was proceeding on several fronts to get into long distance.

    The company plans to file for permission to offer long-distance service in all five of the states in its region within five days after Clinton signs the telecommunications bill, and Cullen said Bell Atlantic hoped to begin carrying long-distance calls within 12 months.

    Deatherage cautioned that some of the excitement was premature. The Federal Communications Commission and state regulators must now begin the arduous process of setting ground rules for this deregulated marketplace.

    "The devil is in the details," Deatherage said. "And we're only just starting that process."

    Still, for telecommunications executives who have waited for more than a decade to see their industry deregulated, Thursday's votes were cause for jubilation.

    Holland of MFS said he was suffering from a sinus infection as he waited for the results of the votes. "Today's news is better than any antibiotics," he said, minutes after the Senate passed the bill.

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