NEWS ANALYSIS : Baby Bells Crawl Into Information Services : Technology: The regional phone companies have been freed to enter the new arena of information services but aren’t rushing to take advantage of the opportunity. Their strategies are long term.

With collective revenues of $80 billion a year and a customer list that includes most of the nation’s homes and businesses, the seven regional Baby Bell telephone companies have long been viewed as the 800-pound gorillas of the information age.

But regulatory restraints have kept them from sitting anywhere they want.

Now the cage is beginning to open. Recent legal rulings will allow the ill-monikered Baby Bells not only to carry other peoples’ information on their phone networks, but also to own and sell information as well.

Soon, consumers will be able to use a touch-tone telephone to call a phone company database and find out the location of the nearest plumber. The alarm system in your home might be monitored from the phone company office. Computer owners might tap into a phone company database for the latest sports scores or stock quotes. Eventually, specific movies might even be provided on demand over the telephone network.

Not surprisingly, many current players in the information business--including newspapers, cable television firms, independent directory publishers and computer network operators--are decidely unenthused about the phone companies’ new freedom. They contend that the Baby Bells will use their control of local phone lines to monopolize the burgeoning electronic information market, and a noisy argument is raging in Washington over whether Congress should impose new restraints.

Yet, even though the Baby Bells--who have long maintained that the restrictions were depriving the public of new services--probably will prevail in this dispute, their entry into information services is shaping up as gradual and cautious. They may be big and powerful, but the Baby Bells are also slow moving, even plodding, and less concerned with the information market of today than with positioning themselves for the 21st Century.

Indeed, information services will probably remain a small business for the Baby Bells until they can offer not only voice and data but video services as well--and for legal and technical reasons, that remains far in the future. In the meantime, mindful of previous failures in competitive businesses, they’ll step carefully, continuing to lobby for removing the remaining restrictions on equipment manufacturing, long distance telephone service and television programming, and continuing to get the overwhelming majority of their revenues from regulated local telephone service.

“They’re still early in the learning curve in terms of how to develop new markets and how to sell things,” says Peter Bernstein, an analyst with the telecommunications research firm Probe Research. “They will be formidable competitors in terms of financial clout, but they don’t have the expertise in these new areas that many other people have. And in areas where they don’t have expertise, their track record has not been impressive, either individually or collectively.”

Even though they’ve been lobbying for eliminating the information services restrictions almost since they were formed in 1984 after the breakup of American Telephone & Telegraph Co., the Baby Bells are not leaping to take advantage of last month’s court decision granting their long-sought desire to provide not only the basic network facilities for information services but also the information “content” as well.

Although specialized information services such as alarm monitoring, vehicle tracking and computer services for large business customers may be rolled out by some of the regional companies within the next several months, it will probably be several years before a broad panoply of general-purpose information services are available to consumers.

Most of the early services will be incremental enhancements to current phone offerings, ways of exploiting the capabilities of existing network facilities rather than elaborate new databases or computer networks. Pacific Bell, for example, will look at ways to provide information to customers who have Pacific Bell voice-mail boxes.

Thus, someone who follows a particular stock or sports team, for example, might be able to direct that a message be sent to his voice mail each day telling how that stock or team fared. With voice-recognition technology, it might also be possible to convert a voice message to a fax and send it on to someone else.

Business customers who use Pacific Bell’s centrex service--which provides the functions of an office telephone system via equipment at a Pacific Bell central office--might be able to have Pacific Bell store and process information about calling patterns in addition to providing phone lines and call switching.

Many of the Baby Bells’ early forays will hardly match the high-tech image that’s commonly associated with new information services. Russel Lindenlaub, director of corporate planning at Southwestern Bell, says some of his company’s initial efforts will focus on operator-assisted information services. For example, a consumer might be able to call a number and ask a live operator the location of the nearest hardware store.

Similar audiotex systems, in which a touch-tone telephone is used to retrieve recorded information, will play a prominent role in the early phone company efforts in information services.

“Electronic yellow pages,” often cited as the most important consumer information service to be available from the phone companies--and the one that strikes fear in the hearts of newspaper companies--will probably make its first appearance as audiotex. The same goes for electronic classified ads.

“They’re taking a very deliberate approach,” says Steven Sieck, vice president for electronic services at Link Resources, a New York consulting firm. “It will take them time to develop services that really assist in shopping.”

It’s not hard to see why the Baby Bells would move carefully in the information services arena. They’ve learned some hard lessons from previous diversification efforts. Pacific Telesis, NYNEX and US West, for example, made ambitious forays into the telephone and computer equipment sales business in the mid-1980s but were forced to retreat after absorbing big losses.

Similarly, most of the companies tried to build businesses in equipment leasing, real estate and financial services, only to find that those industries were trickier than they looked from afar--even for the most deep-pocketed players.

Virtually the only Baby Bell diversification efforts that have proved successful have been in cellular telephone service, paging and international telephone consulting services. These are close to the traditional competence of the telephone companies.

“There was a time when the Bell companies believed that getting a green light to go into something new meant they could immediately go in and make profits,” said Eli Noam, a professor at Columbia University and director of the Columbia Institute for Tele-Information. “Now they’ve become much more realistic about what they can do.”

Furthermore, the information services business is in its infancy, and it remains unclear which pieces of it might become big enough to be worth the effort for firms as large as the Baby Bells. According to Link Resources, the entire U.S. information services market--including everything from electronic mail to database services, audiotex, answering services and business video services, but excluding cable TV--will be worth about $21 billion in annual sales this year.

Although Link expects that to grow to $30 billion by 1994, the Bells would have to be wildly successful and grab a huge chunk of the market to make a significant difference for them financially.

“There just isn’t any business there,” one Wall Street analyst said. “It’s extremely speculative to guess at what the long-term impact will be, and over the next couple of years any impact it does have (on Baby Bell financial returns) is likely to be negative.”

Robert L. Barada, vice president of corporate strategy at Pacific Bell, agreed that any impact will probably be gradual. “My personal prediction is that (information services) will bring continuous improvement to the financials of Pacific Bell, but there will be no big whammy, no big merger or acquisition, no sharp upturn.”

Ironically, it will probably be some time before the Bell companies even begin developing the type of elaborate services that require an extensive telecommunications network--exactly the kinds of things that Bell companies are supposed to be uniquely positioned to develop and market to a mass audience.

The French Minitel system, for example, was commonly cited by the Bell companies as the type of information system that would bring big benefits to the public but could not be offered without phone company participation. The Minitel network provides a wide variety of on-line services--including news, entertainment listings, games, shopping services and “chat” lines--via a network of cheap computer terminals that are given away by the French telephone company.

But these types of information services, known generically as videotex, have proved notoriously expensive and difficult to popularize. All the Baby Bells except US West scrapped experimental videotex systems in which they were allowed to provide a “gateway” to information services that were operated by other companies. Even now that they can own the information themselves, none of the companies have immediate plans to revive those systems.

In fact, the companies that currently operate on-line information services--including Prodigy (a joint venture of International Business Machines Corp. and Sears, Roebuck & Co.), Compuserve and Dow Jones--aren’t too worried about direct competition from the Baby Bells, though they have lobbied for restrictions on their entry into the business.

“We have always anticipated that the Bells would be involved someday in some way,” said Richard J. Levine, vice president and editorial director of Dow Jones Information Services, which operates a successful financial and news information service called Dow Jones News Retrieval. “We would have preferred that there be some safeguards (against unfair competition by the Bells). . . . But there are certain unique skills that companies like Dow Jones have acquired that have great value. I don’t see us disappearing.”

It is possible that one or more Baby Bells will take a big leap into videotex or related electronic publishing fields by acquiring an existing information provider or a publishing firm, but most analysts expect them to eschew this route.

Much further down the line for the Baby Bells are video services. Providing television programs over the telephone network--in competition with cable-TV firms--is probably the most important long-term information services opportunity for the phone companies. But several technical and regulatory hurdles must be overcome before they can enter that business.

The basic telephone network is not yet capable of carrying broadcast-quality video to the home. Many in the industry look forward with enthusiasm to the day when many homes are wired with fiber-optic cables that use light to carry high-quality video and many other types of information, but that day is many years away.

In addition, the phone companies are still barred by federal law from offering television services within their telephone service areas--though they can buy or build cable-TV systems in other geographical regions. The Federal Communications Commission recently proposed rules that could ease the restrictions on video somewhat, but full-fledged phone company entry into TV would require congressional action.

Still, it is these long-term opportunities--rather than information services as currently defined--that the Baby Bells are interested in, analysts say. Telephone network planning is a long-term process, and the Baby Bells don’t want restrictions on the depth or breadth of their participation in an industry that will evolve in unforeseen ways over many decades. That’s why they will continue to push for the removal of the remaining restrictions on their activities, including not only the TV ban but also the prohibition on equipment manufacturing and long-distance telephone services.

For the foreseeable future, then, the Baby Bells will become relatively small players in a relatively small market. But they’re willing and probably able to play for a much more rewarding long haul.

Times researcher Norma Kaufman contributed to this story.

How Baby Bells Are Reaching Out The seven regional Bell telephone companies were formed in 1984 after the breakup of American Telephone & Telegraph. Since then, they have expanded beyond basic local telephone service into such services as cellular telephone, paging, software, computer maintenance and overseas phone service. Figures are for 1990. 1. Pacific Telesis Headquarters: San Francisco Employees: 65,829 Subscirber lines: 14,122,000 Total revenue: $9.7 billion Revenue from non-basic-telephone businesses: $1.85 billion Total net income: $1.03 billion 2. US West Headquarters: Denver Employees: 65,469 Subscriber lines: 12,562,000 Total revenue: $9.96 billion Revenue from non-basic telephone service: $1.8 billion Total net income: $1.2 billion 3. Southwestern Bell Headquarters: St. Louis Employees: 66,690 Subscriber lines: 12,105,000 Total revenue: $9.1 billion Revenue from non-basic-telephone businesses: $1.7 billion Total net income: $1.1 billion 4. Ameritech Headquarters: Chicago Employees: 75,780 Subscriber lines: 16,278,000 Total revenue: $10.7 billion Revenue from non-basic-telephone businesses: $1.13 billion Total net income: $1.26 billion 5. BellSouth Headquarters: Atlanta Employees: 86,000 Subscriber lines: 17,500,000 Total revenue: $14.3 billion Revenue from non-basic telephone businesses: $2.1 billion Total net income: $1.6 billion 6. NYNEX Headquarters: White Plains, NY Employees: 93,800 Subscriber lines: 15,303,000 Total revenue: $13.6 billion Revenue from non-basic-telephone businesses: $2.5 billion Total net income: $949 million 7. Bell Atlantic Headquarters: Philadelphia Employees: 81,600 Subscriber lines: 17,484,000 Total revenue: $12 billion Revenue from non-basic-telephone businesses: $1.6 billion Toal net income: $1.3 billion Source: Northern Business Information and the companies