Telecom Act Yields Combat, Not Competition

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Telecom Act Yields Combat, Not Competition

By Shannon Henry

Staff Writer

The formation of cozy mergers rather than scathing competition characterizes the 12 months since the Telecommunications Act of 1996 became law.

While the past year has not seen the telecom revolution many had predicted, it has laid the foundation for a potentially nasty fight as the Federal Communications Commission reforms access charges and local and long distance companies finally venture into each other's markets.

Organizers of ComNet, an annual conference Feb. 3-6 in Washington, managed to get some of the most significant players together in one room for several hours to discuss the state of telecom reform. Not surprisingly, the stakes are huge. The local telephone market is estimated at $100 billion annually, the long distance market at $76 billion.


FCC Commissioner
Susan Ness said telecom
reform will take time.

FCC Commissioner Susan Ness compared the process to a family vacation where the kids are constantly asking, "Are we there yet?" "Understand, things take time," said Ness.

The FCC, to its credit, is working simultaneously on rules associated with the Telecom Act, as well as on access reform and universal service - some of the most controversial and sweeping changes to confront the agency.

Cable companies' surprising reluctance to fight the local and long distance phone businesses has certainly helped slow the process. And powerhouses such as Philadelphia-based Bell Atlantic Corp. and Nynex Corp., New York; and SBC Communications Inc., San Antonio, and Pacific Telesis Group, San Francisco, are focusing on completing mergers, furthering the snails pace. The SBC-Pac Tel merger was unanimously approved by the FCC in January.

Regulators are still closely analyzing the Bell Atlantic-Nynex marriage. The two companies had hoped to wrap up the merger by the end of 1996. However, industry watchers say regulators are uncomfortable with the deal, fearing it would give one company an instant virtual monopoly over the Eastern seaboard.

It is possible that too much market share is being amassed as a result of these mergers before the real competition has started, said Eugene Kimmelman, co-director of the Washington-based Consumers Union. The Consumers Union acts as a watchdog group for individuals, mainly focusing on competitive pricing in the phone market. "The act has failed so far in its first year," he said.

From a consumer perspective, individuals have not seen phone bills change much. Already, however, advertising and direct mail aimed at consumers are harder-hitting, like AT&T's recent campaign to send previous customers $150 checks that can be cashed for coming back.

The Baby Bells and the long distance phone companies have moved to opposite sides of the ring and are blaming each other for not starting the fight. Just last week the United States Telephone Association, which represents local phone companies, formed a coalition of consumer, labor and industry groups, including the labor group Communications Workers of America, to lobby for its side.


Bell Atlantic is close
to meeting the FCC
requirements for the
company to enter the
long distance market,
according to James
Cullen, vice chairman
of Bell Atlantic.

"It's called a cartel in less polite circumstances," said James Cullen, vice chairman of Bell Atlantic, about the current competitive structure in which long distance is controlled primarily by three carriers.

Roy Neel, president of USTA, agreed: "It's a classic oligopoly."

"Mr. Neel's membership doesn't seem to be too interested in competition," countered Mike Salsbury, executive vice president and general counsel at MCI. "I would like to urge Mike [Salsbury] to get a grip on reality here," Cullen returned.


Roy Neel, president of
USTA, characterizes the
current competitive structure
in which long distance is
controlled primarily by
three carriers as
"a classic oligopoly."

During the session, Salsbury and Cullen continued to call each other liars about statistics each quoted on rate raises by the long distance companies.

Bell Atlantic is now close to meeting the FCC requirements for the company to enter the long distance market, Cullen said.

By the end of March, he said, Bell Atlantic will file for permission to offer long distance in the states it now sells local service, Cullen said. Other Bells are also close to meeting their goals. By the third quarter of 1997, Cullen predicted, one of those Bells will get FCC approval. "Then it's just a hop, skip and a jump to Mike's worst nightmare," Cullen said.

Chicago's Ameritech Corp., the first Bell to file such an application, withdrew its proposal last week after the FCC rejected part of it for inaccuracies. Ameritech had asked the FCC for permission to offer long distance service in Michigan. The company is expected to regroup and file again, although another Bell may now beat it to the long distance market.

For its part, MCI announced Feb. 6 that it is offering local service in six new markets, which gives the company local share in 31 markets.

Salsbury and executives from AT&T and Sprint are disappointed that the Bells are fighting the long distance companies rather than one another. "We'd much rather go into this cozy oligopoly than go into Ohio, I admit that," said Cullen.

The access charge reform now going through the FCC, which regulators hope to finalize by spring, has further galvanized the groups. Long distance companies now pay local telcos an access charge to reach customers. The FCC is not only deciding how much of an access charge is fair, but also if Internet companies should have to pay access charges, too.

Local phone companies argue they have reduced access charges by more than $9 billion over the past five years while the long distance companies have raised their rates. Long distance companies say it is unfair to force them to pay their rivals, especially as they directly compete with the Bells.

Another reason telecom reform seems so slow in coming is that even as companies expand their markets, they are first reselling rather than building new lines. There's not much incentive for companies to build their own facilities, said Neel. "Something has been lost here, which is the stimulus for investment."

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