Review of Rules on Baby Bell Services Ordered by Court

A federal appeals court on Tuesday ordered a new look at the ban that keeps the seven independent Baby Bell telephone operating companies from selling electronic shopping and information services.

Since the 1984 breakup of American Telephone & Telegraph Co., Baby Bells such as San Francisco-based Pacific Telesis have been barred from a potentially vast and lucrative market involving the sale of goods and information through computer terminals in homes and offices.

U.S. District Judge Harold H. Greene, who approved the original dismantling of AT&T; six years ago, at that time ordered the regional phone companies to limit their businesses to providing local telephone services. He barred them from offering long-distance telephone operations, manufacturing equipment or selling shopping and information services. He upheld those bans in a ruling last year.

The U.S. Appeals Court here ruled Tuesday that Greene was correct in upholding the ban on long-distance activity and the production of equipment. But it told Greene to reconsider the issue of information services.

“The line of business restrictions (was) not meant necessarily to be permanent,” the appeals court said.

The local Bell companies would like to offer “electronic Yellow Pages,” enabling consumers to look at product displays and search for vendors while seated at video terminals. This service would mount a major economic challenge to newspapers and magazines in the intense competition for advertising revenue.

The phone companies argue that they would be expanding consumers’ access to information. Opponents say the phone companies’ already-hefty financial resources would allow them to sweep into the new markets and dominate them at the expense of all other competitors.

The phone companies are allowed to create “gateways,” enabling personal computer owners to get access through phone lines to collections of information known as databases. But the phone companies are simply carriers of this information--they cannot create the content of the database.

The databases may include stock prices, restaurant and movie reviews, video games and a plethora of other information. The phone companies want to generate and sell this information, rather than simply carrying it.

American homes contain 18 million personal computers, a figure certain to increase dramatically. This is a huge and fragmented market being served by nearly 2,000 different firms. With their lines going into virtually every home, the phone companies envision a ready-made market for an incredibly diverse range of information and services.

The appeals court said Tuesday that Judge Greene “should determine whether removal of the information services restrictions as applied to the generation of information would be anti-competitive under present market conditions.” The ruling came in a unanimous 3-0 decision.

The 1984 decree under which Greene set the original ban is reviewed every three years by the Justice Department. The department has generally favored removal of restrictions. The department had suggested that Greene lift his ban on marketing and information activity.

Greene issued an order upholding the current ban, and his ruling was taken to the appeals court.