Local Phone Companies Feeling Heat

Pacific Bell, GTE California and the state’s 20-odd other local phone companies still enjoy virtual monopolies in their respective service areas. But that is changing--in ways that promise to revolutionize the way consumers and businesses buy and receive phone service.

In the same way that giant American Telephone & Telegraph has lost market share to smaller upstarts in the long-distance business, a handful of entrepreneurial competitors are asking regulators to open local phone markets further to competition. That will enable them to cash in on a growing business and chip away at the market shares enjoyed by Pacific Bell and other local firms.

So far, such increased competition is minimal. But the prospect of its growth was a major factor cited by Pacific Telesis on Thursday in announcing that it will cut 16% of its work force in the next five years, mostly in its Pacific Bell unit.

“Looking at the next five years, it’s etched very keenly in everybody’s minds that we have to do this to remain competitive,” said Pacific Telesis spokeswoman Amy Damianakes.

An example of the new breed of competitor is Metropolitan Fiber Service, a 2-year-old private venture that offers local connections to big business in a dozen U.S. cities, including Los Angeles and San Francisco.

“Our competition today is in what is designated as special access only, a very small part of the total access (provided by) the Bell operating companies,” said George Tronsrue, a vice president of Metropolitan Fiber Systems.

Its local links connect major telecommunications users, such as brokerages and other financial institutions, to the long-distance carriers of their choice, bypassing local public networks run by Pacific Bell and other local phone companies.

Metropolitan Fiber Systems, based in the Chicago suburb of Oakbrook, Ill., installs its switching system in the heart of a major metropolitan area--800 W. 6th St. in Los Angeles. Then it extends high-capacity, high-fidelity optical fiber strands to connect surrounding buildings to one another, creating its own local network. This in turn is hooked to the nearby switching machines of such long-distance carriers as AT&T;, MCI, US Sprint and the more than 100 other more specialized long-haul companies.

“It’s a small niche, but a viable business for us,” Tronsrue said. “But when you look at what else is there, there is a significant portion of local-access service that we are precluded from developing.”

Building a tiny niche into a big business mirrors the genesis two decades ago of MCI, which began by handling private traffic by microwave between St. Louis and Chicago and parlayed that into opening the entire long-distance telecommunications market to competition.

Now federal and state regulators are begining to lighten their control over AT&T;, which has watched its former long-distance monopoly shrink to a two-thirds share of the market. At the same time, MCI and US Sprint have grown into billion-dollar concerns themselves, and both now are also profitable.

Now, Metropolitan Fiber Systems has asked federal authorities to let it broaden its entry into local telecommunications. It seeks the right to plug its private customers into the Baby Bells’ local networks, paying just for the part of local service that it needs to complete its own system.

The California Public Utilities Commission also has called hearings this year on opening the local monopoly. Tronsrue said MFS intends to make its same appeal to the state regulators.

Doing so would require and the local giants to break down service into “basic service elements” and offer these for sale separately. But today, Tronsrue said, would-be competitors like MFS must pay for a connection to the local switching machine, which they don’t need, in addition to the transportation to their customer’s local phone lines, which they do.

But competition is not a one way street. Pacific Bell and other Baby Bells want to get into other markets themselves. They are pressing Congress and the Federal Communications Commission to amend the nation’s cable television laws to let them carry video signals, which they currently are prohibited to do within their service areas. An unregulated PacTel subsidiary already has entered cable TV in Britain.

“It’s about 10 years overdue,” said Stuart Crane, telecommunications analyst with Gruntal & Co. “They should have competition from the Bell companies. There is no reason (today) for the (1984) Cable Act.”

GTE California, under special FCC authorization, carries cable television for ApolloVision in Cerritos, testing the capabilities and qualities of three forms of transmission: traditional copper wire, coaxial (or two-way) cable and optical-fiber cable. As a part of that test, a handful of Cerritos households--actually only five--this year will enjoy optical-fiber links to their homes that will enable them to sample such services as home banking and shopping andcalling up movies to be viewed on demand--services already available to telephone customers in France.