Phone Giant Gets Too Many Customers by Default, Rivals Complain : AT&T;’s Competitors Seek More-Equal Access

Ninety days before “equal access” long-distance phone competition came to Minneapolis, Omaha and Des Moines, the local phone company serving those Midwestern cities sent a ballot to customers inviting them to pick a preferred carrier from a slate of candidates.

Once the so-called equal-access service began, customers could reach their chosen carrier merely by dialing 1 and an area code--an ease of access previously reserved for customers of American Telephone & Telegraph, heir to the nation’s original long-distance network.

Those customers who failed to send in ballots received another mailing a month later informing them that a carrier had been selected for them, but inviting them once again to choose a different one if they wished.

That process of allocating customers among competing companies contrasts markedly with the process used in California and, indeed, everywhere else in the United States, where “non-voting” consumers remain by default with AT&T.;

AT&T;’s competitors have condemned this “default” procedure before the Federal Communications Commission and have urged the FCC to ban it as unfair and anti-competitive. “It’s like having an election in which, if you don’t vote, the vote goes to the incumbent,” complained Tom Bestor, a spokesman for GTE Sprint, the nation’s third-largest carrier.

“Equal access isn’t turning out to be what it was intended to be--a real opening up of the market,” Bestor argued. “Only about 30% (of the consumers queried) make a choice, and the rest go by default to AT&T;, which doesn’t have to spend any money and is guaranteed the lion’s share of the market.”

That view has the strong support of the Justice Department, whose settlement of an antitrust lawsuit against AT&T; brought about the equal-access program.

The FCC’s decision is expected in June or July.

AT&T; Communications, for its part, submitted results of a national survey conducted for it by Marketing Viewpoints of Armonk, N.Y., that indicated that, unless they chose a competitor, consumers overwhelmingly preferred remaining with AT&T; to being assigned another carrier.

A survey of customers of Northwestern Bell, the local carrier serving Minneapolis, Omaha and Des Moines, indicated that only 23% of those who failed to select a preferred carrier in the balloting realized that they would then be assigned to one. (The allocation system works this way: If 5% of those customers who picked a carrier on the first ballot chose Company X, then 5% of those who didn’t choose would be assigned to that carrier.) More than half incorrectly thought that they would remain with AT&T;, said Lawrence Garfinkel, AT&T; vice president for market planning, in seeking to justify the default procedure.

The survey findings were greeted with some skepticism by Northwestern Bell, whose spokesman, John Walker, said: “Those numbers don’t jibe with what we’re seeing.”

But who is to say, argued Garfinkel, that consumers who fail to designate another carrier have not, in effect, chosen to remain with AT&T;? “The purpose of this process is to give customers a choice,” he said, “not to reallocate market share among the various long-distance companies. . . . The allocation process implies to us substituting for choice a coercive process.

“This whole (equal-access) process was brought into being to create a competitive marketplace,” Garfinkel said. “What some of our competitors are arguing for is protection not of competition but for themselves. They are using this as a vehicle to achieve customers gratis , without marketing.”

Competitors complain that AT&T; enjoys an unfair advantage in marketing, he said, but “the fact is that AT&T; is still regulated in its actions” while its competitors are not. The FCC, for example, must approve AT&T;’s interstate rates, but not its competitors’, he noted.

Competitors Joined Forces

“We’re not dealing with fledgling firms here,” Garfinkel added. “We’re really dealing with IBM (majority owner of SBS Skyline), GTE and MCI.”

Many of those competitors have joined forces in a new trade association called Competitive Telecommunications Assn., headed by Melvyn Goodman, president of Allnet Communications Services, a Chicago-based long-distance carrier.

Goodman said Northwestern Bell’s ballot-allocation process resulted in a far greater proportion of customers’ choosing a carrier before the start of equal access--70% compared to about 30% where default was used. “We think that the ballot-allocation system is more in the spirit of equalizing access and fostering competition in the long-distance market,” Goodman said.

“We also think that the FCC should require that all the customers who have already gone to AT&T; by default--but have yet to make a personal choice of carrier--should be asked to choose among the candidates or face allocation,” he added.

But AT&T;’s competitors feel that unfairness extends beyond the question of assigning a carrier, Goodman said. “A good deal more monitoring and control is needed.”

In its comment to the FCC, GTE Sprint outlined a number of “unforeseen developments” in implementing equal access that it said inhibit fair competition and favor AT&T.; For one thing, it said, because only a few prefixes in a given market are converted at a time, advertising and marketing become very costly.

“In combination, these events have transformed the marketplace during the period of equal-access transition in a manner that could not have been predicted even a short time ago,” Sprint said. “. . . It is clear that a period of ‘de-monopolization’ must occur before true competition can reasonably be expected to develop.”

(Sprint’s parent, GTE Corp., blamed federal policies for Sprint’s $26.5-million pretax loss for 1985’s first quarter, which continued a slide begun in mid-1984 when implementation of equal access began. It said the policies are hurting “all the intercity carriers competing with AT&T;,” whose long-distance service reported a profit for the same period.)

In California, Pacific Bell initially proposed to force its customers to pick a preferred long-distance carrier or face the prospect of having their long-distance calls blocked and greeted by a recorded announcement. After the state Public Utilities Commission and consumer groups called such a plan unduly disruptive, however, the company adopted a default procedure.

But both Pacific and General Telephone of California, the state’s second-largest local telephone company, are modifying their procedures for notifying local customers when equal access is coming.

General, which has the same parent as Sprint, has taken particular pains to treat the long-distance competitors impartially, spokesman Tom Leweck said. “We look at our job as making connections for our customers with whatever long-distance company they want to do business,” he said.

Pacific Bell last week began mailing to customers whose prefixes will convert to equal access after June 1 a new 16-page booklet that includes a “Shoppers’ Guide” to competing carriers. It was prepared by Consumer Federation of America, Telecommunications Research Action Center, the American Assn. of Retired Persons, Consumers Checkbook and Consumer Action.

Pacific also is allowing customers six months after the new service starts to pick a preferred carrier at no charge, said Jerry Oliver, a manager on Pacific Bell’s regulatory-affairs staff. After six months, the sign-up fee is $5.26, and customers can change preferred carriers at any time at that rate.

In addition, new customers in equal-access areas are being asked by both Pacific and General to designate a long-distance carrier when they apply for local service. Failure to do so could delay the start of long-distance service.

(Consumers can use more than one service, incidentally, but only one can be reached by dialing 1 and an area code. For the others, customers dial 10 plus a three-digit code. Not all carriers accept such calls from non-subscribers,but both Pacific and General Telephone have contracts with some of them to handle billing for this “casual” telephone traffic.)

The big push to convert local telephone switches for equal access begins this summer, and, by September, 1986, most of the nation’s urban phones will have been converted. With conversion, long-distance services that sign up for the upgraded switching capability begin to pay the same access fee that AT&T; has had to pay since the breakup of the Bell System on Jan. 1, 1984--a 55% increase over their previous fees for lower quality connections.

While the FCC is not expected to decide the issue before summer, Northwestern Bell’s ballot-allocation procedure has already spread across the Northwest to US West’s two other operating companies, Mountain Bell and Pacific Northwest Bell. In settling an antitrust suit with MCI Communications, which pioneered competitive long-distance service in the 1970s, US West agreed to use the allocation procedure throughout its five-state region stretching west to Oregon and Washington, where parts of Seattle and Eugene are scheduled to convert in August.

All this talk of fair competition is academic in at least one market, however. Pacific Bell’s switches handling local calls in Chico are to be converted to equal access effective May 25, but so far none of AT&T;’s competitors have signed up for the more costly connections--leaving the “dial 1” market in that Northern California town as an AT&T; monopoly.