Writer Corp., the nation's largest independent Corp., the nation's largest independent telephone system, yesterday announced plans to purchase Telenet Corp. of Vienna, Va., for $59 million.
The purchase of Telenet, a small, money-losing, but highly sophisticated data communications company, would allow resource-rich GTE to leap-frog other corporate giants such as AT&T, IBM and Xerox in the potentially lucrative data communications industry.
Under terms of the sale, GTE has agreed in principle to exchange approximately three shares of its stock for every four outstanding shares of Telenet. There are 2.7 million outstanding Telenet shares. GTE effectively is paying $22 a share for the Telenet stock, which has been selling at about $18 a share.
The merger still must be approved by Telenet's shareholders, though five of the firm's institutional investors holding 55 percent of the company already have okayed the agreement. They are Bolt, Beranek & Newman, the Boston-based computer and electronics research firm that launched Telenet in 1972; Bowne & Co., a large financial printing company; Bessemer Securities and Hellman Gal & Co; both venture capital groups; and Time Inc.
The deal also must be cleared by the Securities and Exchange Commission, the Federal Trade Commission and, possibly, the Federal Communications Commission.
It its short history, Telenet has pioneered in specialized communication services, using phone lines to link computers and data bases around the world. It operates in 170 U.S. cities and 22 foreign countries.
In the drive to find the cheapest, quickest and most practical way of linking computers to sources of information in far-flung places, companies have been experimenting with all sorts of systems -- some use satellities, others rely on cables, and some, like Telenet, have worked through existing phone lines. What is unique about Telenet's approach is the way it sends information accoss the lines.
It uses a technnique known as "packet-switching." This involves packaging information into electronic packets which, like bulky packages sent in the mall, are routed through phone lines to their destination in stop-and-go fashion. It differs from traditional transmissios, which travel along a continuous physical path with no interruption.
Whether such a system would work and work cheaply has been the subject of much conjecture within the communications industry. Telenet has lost money from the start, running $4.1 million in the red last year on revenues of $4 million, and losing $3.5 million in the first nine months this year on revenues of $6.5 million.
But GTE's willingness to purchase Telenet for four times the fledgling firm's asset value was taken by industry observers as a promising sign.
"It's super good news," said Patrick McGregor, vice president of Network Analysis Corp., a leading consulting company in the field. "It reinforces the viability of packet-switching as a form of data communications technology."
But the merger poses some curious regulatory questions, both because of the size of the companies involved and their differing nature.
GTE is an old, established monopoly that owns its facilities and is subject to controlled rates. In contrast, Telenet doesn't own its transmission faclities but leases them in bulk, then adds special services.
In recent months, government regulators have been lenient toward companies such as Telenet, known as "resale carriers," and have encouraged their formation in order to stimulate competition in the industry.
"We now have an interesting dilemma," said Alex Latker, chief of the domestic branch of the FCC's Common Carrier Bureau. "We promised we would not lay a heavy hand on this type of carrier. But GTE is regulated from a completely different view. It's all being whipped up into one mess we have to clear up."