Bell Almost There, But Not Quite

The U.S. Department of Justice delivered a setback to Bell Atlantic last week that may have implications to high yield telecom issuers as well, analysts said.

The federal agency announced that the Baby Bell is not ready yet to enter the long-distance market in New York state. Analysts agreed last week that the large telecom issuers eventually will be allowed into the long-distance markets, but still the temporary setback was disappointing.

The junk names did not see a drop in their bonds - in fact, due to general bullishness in the sector, most of the names appeared to trade fairly nicely last week - but anything that impedes competition in the sector can be bad news for the small re-sellers, analysts said.

Meanwhile, Sprint said it would introduce local phone service for customers in New York state, so Bell Atlantic now finds itself with one more competitor in its bread-and-butter local phone market. One high yield investor said that Bell Atlantic may use Sprint's move as further evidence that it should be allowed into long distance.

A final decision by the Federal Communications commission is expected in late December.