NEWS ANALYSIS : Consumers Wary of Plans to Change U.S. Phone Policy

Two separate proposals to inject new competition into the nation’s telephone industry could dramatically transform the type and costs of phone service enjoyed by American consumers while enhancing the nation’s competitiveness in global telecommunications.

But consumer advocates argue that the proposals favor the telephone companies and big business at the potential expense of ordinary consumers.

At the heart of the two proposals--one being considered by Congress and the other by the Federal Communications Commission--is the argument that increased competition for the seven Baby Bell regional phone companies and their former parent, American Telephone & Telegraph, will benefit the phone companies, their customers and the nation.

However, while the proposals have attracted a varying lineup of supporters and detractors within the telecommunications industry, only consumer interests oppose both plans.

“We are concerned that the latest moves would open a Pandora’s box filled with riches for the telephone companies and rags for their small customers,” said Michael Shames, director of a San Diego consumer action group.

Although the issues now before legislators and regulators are not directly or formally linked, the effect of the two plans would be to force new competition onto the Baby Bells in their local markets while allowing them to enter the potentially lucrative new business of manufacturing telecommunications equipment. Insiders give both plans a high probability of passing.

As explosive as they are, the issues before the FCC and Congress represent just the tip of a potentially greater debate looming for U.S. telecommunications policy: the fight for the right to deliver information services--including cable television--to the nation’s homes and offices.

Although the current issues don’t touch directly the matter of delivering information services, their outcome is being closely watched by newspapers, television stations and financial services firms as well as traditional telecommunications interests as a bellwether of future developments.

In the first proposal, the FCC earlier this month voted unanimously to consider opening local telephone service to a variety of new providers, a move designed to introduce competition into the last remaining telephone market with monopoly service.

The FCC approved tentative regulations forcing the seven regional phone companies and GTE to allow competitors access to their central switching system to provide long-distance service to certain business customers. Analysts say the commission could give final approval to the regulations before the end of the year.

Ultimately, proponents say, companies entering these markets could do for local phone service and long-distance connection what MCI and US Sprint have done to the long-distance business: introduce competition and spark a price war.

Proponents say the FCC’s action could lead to lower local phone rates and enhanced services for large business customers. But consumer activists and the Baby Bells complain that it will only siphon off larger business accounts, which traditionally subsidize the rates and service of households and small business.

Officials of one regional phone firm, San Francisco-based Pacific Telesis, say that despite opposition from Baby Bells to the FCC action, most regional telephone companies accept the likelihood of increased competition in their home territories. However, in exchange, they want to win from Congress the right to enter the telecommunications equipment manufacturing business.

That right is at the center of the second proposal. Legislators on Capitol Hill are considering a bill to allow the Baby Bells to enter the manufacturing business, a move currently denied under the terms of the 1984 breakup of AT&T; that created the regional phone companies.

Led by the Baby Bells, supporters of the bill by Sen. Ernest Hollings (D-S.C.) argue that the proposal injects new competition into the $33-billion U.S. telecommunications equipment market and gives the United States seven potent new players to win an increased share of the $120-billion worldwide equipment market.

Detractors of Hollings’ bill, led by AT&T;, now the nation’s dominant equipment supplier, argue that the proposal re-creates the same potential for self-dealing abuse that the breakup of AT&T; was supposed to end.

“If the Baby Bells are allowed into the equipment business, the incentives are great for them to buy their own goods at prices that are probably inflated,” argues Gene Kimmelman, legislative director of the Consumer Federation of America. “It would take an army of regulators to police this. The cleaner solution is to keep the status quo.”