Phone Firms Welcome Ring of Opportunity

Accentuate the positive. While many companies are criticized for nervously concentrating on quarterly earnings and stock prices, the U.S. telephone industry appears to have its act together.

Telephone companies nationally and locally are welcoming pricing reforms, like the one enacted last week by the Federal Communications Commission, which gave American Telephone & Telegraph permission to set its own prices for long-distance service.

What the FCC did was change the way long-distance prices are regulated, from one in which the company earns a set profit to one in which prices are set competitively. Thus, a wasteful system that discouraged cost cutting and encouraged cost padding shifts to one that should give long-distance callers lower rates.

More important, price reform has become a trend: Since the AT&T; breakup on Jan. 1, 1984, 37 of 50 states have acted to reduce or abolish regulated pricing for local telephone companies, and seven more states are studying ways to do it.


What’s happening is that the regulated telephone industry is being turned into a competitive business. And, significantly, the telephone companies are not asking to remain in safe harbor but are pushing for reform. In every area, the Bell operating companies--Ameritech, Bell Atlantic, BellSouth, Nynex, Pacific Telesis, Southwestern Bell and US West--are petitioning local regulators for freer pricing so they can compete to supply computer network services to business customers.

Helped by Technology

Local utility commissions watch to make sure that lower charges for business are not offset by higher rates for residential customers. But that hasn’t been a problem. Residential rates since the breakup have gone up more slowly than inflation, and a recent FCC poll showed 94% of both residential and business customers to be satisfied with telephone service.

The plain fact is that advances in technology are allowing more telephone service to be delivered cheaper. And the reason phone companies are confident is that technology promises greater opportunity tomorrow, as fiber optic cables vastly expand the telephone system’s capacity. The services phone companies will be able to deliver will grow geometrically--information and video, schooling in the home “and other developments we cannot even imagine,” says Romy Tomlinson, a network manager at Nynex, the regional Bell company for New York and New England.


Opportunity will take hard work and enormous expenditure, however. The regional Bell companies face tens of billions of dollars in investment in the next decade to install fiber optic telephone lines street by street and house by house.

But people in the industry are talking about the challenge, not the burden. “We want to provide an information infrastructure for this country,” says Chairman Raymond Smith of Bell Atlantic, the Philadelphia-based regional company.

“Fiber will have the effect of a whole new transportation system on the U.S. economy,” says Elliott Maxwell, a planning official at Pacific Telesis, the San Francisco-based holding company.

Much More Costly


Experiments are under way, such as the one at Lynnfield, Mass., where Nynex is installing some fiber cable street by street, offering customers 10 times the phone line capacity of today’s copper phone cables. That’s good enough for data and voice transmission, but not enough for video transmission--which is the big promise of the next two decades. Even so, fiber at present is double the cost of copper telephone cable--$2,000 to $4,000 per subscriber, compared to $1,000 to $1,500 a subscriber for copper.

Why mess around with something so costly? Because fiber cables will be the industrial highways of the information age. The business that has them will have lower costs. That’s one reason Japan’s government and industry plans to spend an estimated $240 billion to install fiber networks throughout Japan in the next decade. That’s why France is building on to the system it began 10 years ago by giving all its citizens home computers.

Happily for once, American companies are not neglecting the future. In their eagerness to get on with the job, the telephone companies seem almost a throwback to a more venturesome age.

To be sure, competitors in computers and cable television are watching the giant Bell companies nervously. It remains to be decided by regulators and probably by courts just how big a role the Bell companies will be allowed to play.


But the important point, says analyst Eugene McAuliffe of First Albany Corp., an investment firm, is that the phone companies have the capability to grasp opportunity. “The companies have the cash flow for their own expansion,” says McAuliffe, “they’re not subject to interest rate risk.”

Which makes the Bells among the most promising companies for the next decade--another happy fact--because they are owned by more than a million shareholders each. It’s about time the small stockholders got a break, too.