In Bid for Internet Business, GTE to Acquire BBN Corp.

NEW YORK — Greatly widening its grab for Internet business, GTE Corp. on Tuesday said it will buy BBN Corp. in a $616-million deal that would create a powerful new rival to AT&T; Corp. and other Internet access providers.

Already the nation’s largest local telephone company, GTE plans to use BBN’s high-tech network to offer large businesses hungry for Internet access a single source for a broad array of telecommunications services.

GTE also said it entered a strategic alliance with Cisco Systems Inc. to develop data and Internet services and said it will buy a national, state-of-the-art fiber-optic network from Qwest Communications.

GTE Chief Executive Charles Lee said the company’s goal was to become a “market-leading telecommunications” company by 2001 with annual revenue of about $36 billion. GTE earned $2.8 billion on revenue of $21.3 billion last year. Industry analysts said the transactions were meant to transform Stamford, Conn.-based GTE into a powerhouse selling long-distance services and Internet access.

BBN, based in Cambridge, Mass., helped build the modern Internet. It operates regional computer networks and offers services for businesses such as dial-up access, consulting and hosting of World Wide Web sites.

Analysts said GTE--a unique hybrid of local and long-distance company--is well-positioned to attack a fragmented market in which no one player has a major share.

Unlike some rivals, GTE has a ready source of cash to fund its ambitions from its lucrative core business of providing local phone service in thousands of small communities in 27 states in the Midwest and West.

The BBN purchase deals a direct blow to AT&T; and other Internet access providers. BBN had been under contract to AT&T; since June 1995 to provide most of the networking facilities for the company’s Internet service.

AT&T; spokesman Mike Miller said that it was unclear how the GTE acquisition would affect the contract. AT&T;, through its Ventures unit, has a less than 10% stake in BBN.

Tuesday’s move marks an acceleration of GTE’s drive for Internet business, which up to now has lagged that of long-distance rivals.

Last year, it launched a national Internet access service with help from UUNet Technologies Inc., which also connects the big online services to the global network. But the deal that gave it access to UUNet’s backbone was a partnership, not a purchase.

GTE warned investors that the cost of the moves would make growth in its earnings per share “flat to slightly positive” for the rest of this year. The company had earlier promised at least 10% growth.

GTE said its purchases from Cisco, the world’s biggest maker of computer network equipment, could exceed $1 billion over the next five years.

In addition, GTE is buying “dark” fibers in privately held Denver-based Qwest Communications’ national network that would give GTE a fiber-optic network that stretches from the Atlantic to the Pacific by 1998. Financial terms were not disclosed.

GTE said it planned to have the new Internet service operational by next year.

GTE said it will offer to buy all of BBN’s outstanding stock for $29 a share, or a 28% premium over its closing price Monday. BBN shares surged $6.25 to close at $28.875 on the New York Stock Exchange.

GTE stock fell $1.125 to close at $45 on the NYSE as investors reacted to the company’s prediction of slow earnings growth.