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Long Distance Battle Continues As Competitors Announce Merger

July 23, 1985

WASHINGTON (AP) _ Two of the smaller nationwide long-distance telephone companies have agreed to merge, vowing to become ″a major force in our industry.″

The merger of Allnet Communications Services of Chicago and Lexitel Corp. of Birmingham, Mich. continues the shakeout of the long-distance market, long dominated by American Telephone & Telegraph Co.

The creation of a new long-distance company comes on the heels of the marriage of IBM’s SBS phone system and MCI, the second-largest long-distance company.

In the merger arrangement, Allnet shareholders will receive $15 million cash, $40 million in 10 percent securities and 21.6 million common shares in the new company.

The smaller Lexitel must contribute $43 million in new investment to the merged company. Its shareholders will also get 21.6 million shares of stock.

Meanwhile, AT&T told the Federal Communications Commission Monday there was no need to grant a June 17 request by Allnet and three other companies to slow deregulation of the long-distance industry.

The small companies said such a move would help preserve competition. But AT&T said the granting the request would amount to setting an ″anti-competi tive, re-regulatory agenda.″

The commission had been asked to consider whether deregulation of the telephone industry is happening too fast for competition to take hold.

The four smaller companies had asked the FCC to go slow in removing restraints on AT&T to give them time to grow stronger. But AT&T said the competitors were ″asking the commission to protect them from the very competition they claim to seek.″

The smaller companies want access to lists of AT&T’s subscribers and information on their long-distance calling patterns.

AT&T’s response said the competitors ″want to appropriate to themselves a a variety of AT&T assets, instead of incurring the normal competitive expense of developing their own.″

Michael Richer, chairman and chief executive officer of Allnet, said the combined company will still be a distant fourth behind AT&T, MCI, and GTE Corp.’s Sprint system.

But he said the new company is ″reaching critical mass. The bigger you get, the more traffic you carry, the more traffic you carry, the lower the cost of carrying that traffic.″

Lexitel chairman George Vasilakos and Richer said in a joint statment: ″We believe that a number of consolidations will take place in the long-distance market during the next two years and are confident that through this combination we will continue, profitably, as a major force in our industry.″

Both Lexitel and Allnet have ended up with many subscribers in small- and medium-sized businesses, while other long-distance companies have done well among major corporations and residential customers.

By September 1986, most Americans will be required to select a company to provide their long-distance service. Under the government-ordered equal access program, calls will automatically be routed to the selected company without the need for dialing a lengthy access code.

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