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Thursday, May 18, 2000

GST sale
could be boon
to Oceanic

The inclusion of a fiber-optic
cable network would aid Time
Warner Telecom's Oahu affiliate
in its battle against HawTel

By Rob Perez


Time Warner Telecom Inc.'s tentative plan to acquire substantially all the assets of GST Telecommunications Inc. would provide a major boost for Time Warner's Oahu affiliate if the deal includes GST's fiber-optic network linking the major islands, industry observers say.

The two companies announced the signing of a tentative agreement yesterday in which Time Warner Telecom would pay $450 million for the GST assets. GST also filed for Chapter 11 bankruptcy protection yesterday.

The asset sale is expected to include GST holdings in Hawaii, though the companies would not say which ones. One of GST's major assets here is a multimillion-dollar, state-of-the-art fiber-optic cable network linking the state's six main islands.

If that is part of the deal, it would provide a huge boost to Oceanic Communications, Time Warner Telecom's local affiliate, according to industry officials and analysts.

Oceanic, with its own fiber-optic network on Oahu, provides high-speed telecom services to businesses and government agencies on this island.

GST's undersea network would immediately transform Oceanic into a statewide player and likely would help accelerate the time in which sophisticated telecom services reach other areas of the state, the industry officials say.

While some expressed concern that the deal will effectively eliminate a major, though cash-strapped, telecom competitor in Hawaii, it would strengthen Oceanic's presence, putting the company in a better position to compete with GTE Hawaiian Tel, the state's dominant carrier, analysts say.

That, in turn, should benefit consumers as the two companies and other major players compete for customers in a more vigorous market, analysts and executives say.

George Irion, an executive with AT&T Corp. in Hawaii, said the proposed deal, if it goes through, should help speed the delivery of innovative, new services to all Hawaii. "It will give Oceanic Communications a broader reach," he said.

AT&T uses Oceanic's network to help serve AT&T customers.

Michele Tokunaga Morikami, a former telecommunications business manager for Hawaiian Electric Co., said she doesn't see a downside to the proposed deal. It will expand Oceanic's technical capabilities throughout the state, improve the potential for enhanced services and stir up competition, she said.

That may lead to better deals for consumers, she said. "What it means for the people of Hawaii is possibly more for less."

In the near term, such benefits likely would come in the commercial sectors. Both Oceanic and GST focus on business customers, a segment of the market currently considered more lucrative than the residential side.

But Courtney Brown, chairman of the Coalition for Competitive Telecommunications, decried Time Warner's possible acquisition of the GST assets.

"It's a setback for competition in Hawaii," he said.

GST is one of only three companies providing telecom services locally on their own fiber-optic networks. GTE and Oceanic are the other two. If GST sells its assets, that would leave only two companies, not a positive development for consumers, Brown said.

The proposed deal, which still faces some sizable hurdles, is expected to close in the second quarter, according to Bloomberg News. The two companies still must reach a definitive agreement and then get the approval of the bankruptcy court and state and federal regulators.

GST in September had said it wanted to sell its Hawaii assets and leave the local market by year's end. But it was unable to pull off such a deal.

By last week, Vancouver, Wash.-based GST was saying it was running out of money and might have to file for bankruptcy protection.

Oceanic Communications is an affiliate of Oceanic Cable, the dominant provider of cable television locally. Both are part of New York-based Time Warner Inc., the huge media conglomerate, which also owns about 48 percent of the publicly traded Time Warner Telecom.

Oceanic Communications has about 300 miles of fiber cable on Oahu -- roughly twice the size of GST's isle network. GST, however, also has 300 miles in its interisland network. Other GST assets in Hawaii include an online service provider and telephone switching equipment. The company employs about 60 locally.

A company spokesman said GST's Hawaii operations will run as usual while the bankruptcy case proceeds.

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