Pac Bell Takes Path of Its Own : Communications: Plan to create an interactive network on its home turf is a departure from the rest of the Baby Bells.
Pacific Bell’s announcement Thursday that it will spend $16 billion to connect California homes in a high-speed fiber-optic network is expected to generate several thousand new jobs and turn its service area into the first large region to receive video and interactive services via phone lines.
But the acceleration of the company’s investment in a digital system on its home turf--the costliest and most extensive to date by a regional phone company--takes Pac Bell onto a sharply divergent path from the other Baby Bells.
New alliances between phone companies and cable firms have been all the rage in recent months: US West is partnered with Time Warner Inc., Bell Atlantic Corp. plans to merge with Tele-Communications Inc., and on Thursday BellSouth Corp. announced plans to invest $1.5 billion in home shopping service QVC Network Inc. to help its bid to acquire Paramount Communications Inc.
But Pacific Telesis--Pac Bell’s parent--is going a different way, and even plans to spin off its cellular operations. The fiber-optic plan announced Thursday will be carried out by the remaining Bell company, although company officials emphasized that they aren’t ruling out future cable alliances.
Analysts said Pac Bell’s decision to concentrate on its home territory signals other regional Bells not to overlook their own back yard in the quest to expand their reach through big cable partners. “They’re protecting their home base, and it’s going to make it that much more difficult for someone to come in and usurp their monopoly,” said Joshua Harris, president of Jupiter Communications, a consulting firm in New York. “They’re saying telephone services can provide cable services, they have to compete with us, instead of vice versa. And building infrastructure can’t be wrong.”
Said Pacific Telesis Chairman Sam Ginn: “In the end, all competition is local.”
Pac Bell plans to begin by connecting 1.5 million homes by 1996 in the state’s major population centers: Los Angeles, Orange County, San Diego and the San Francisco Bay Area. Another 3.5 million households statewide will be connected by 2000.
The first Southern California communities wired--between 1994 and 1996--will be Canoga Park, Reseda, Sherman Oaks, Calabasas, Hidden Hills, Inglewood, Anaheim, Buena Park, Cypress, Garden Grove, Orange, Stanton and Villa Park.
The goal is to deliver all the possibilities of high-capacity two-way communications--yes, the information highway--to California homes, including video on demand, shopping and interactive education.
Gov. Pete Wilson praised the project as an example of California’s ability to stay competitive in a new age of technological development. “This is the latest signpost on the road to economic recovery for this state,” he said.
If all goes as planned, Pac Bell’s program will pit the phone company against local cable operators throughout the state, giving consumers a choice of video service providers they’ve never had before. But that’s a big if. Federal law bars telephone companies from providing video programming to households in their service area, and only Bell Atlantic Corp. has successfully challenged the ban. Pac Bell plans to pursue a similar legal challenge to the rule.
“If the laws change and they spend $16 billion to upgrade their system, sure, they could be a competitor,” said Marc Nathanson, chairman of Falcon Cable, a Los Angeles-based cable TV operator. “They have a lot of money, they’re a giant monopolist, we’re a pimple compared to them. But the law of the land says they can’t do it.”
Still, phone companies are legally allowed to provide new interactive services that don’t compete directly with what cable firms currently offer, and Pac Bell plans to offer such Jetsons features as “tele-medicine,” where patients can hook themselves up to a terminal and phone in their electrocardiograms, and the more pragmatic movies-on-demand.
AT&T; will provide the equipment and cable for the project for about $5 billion--thought to be the single largest telecommunications equipment purchase ever. Ginn said the company will not raise phone rates to fund the program.
Pac Bell is facing competition from new wireless and cellular services, which are siphoning off more local calls. But while the drive to find new markets spurred Pac Bell to act faster--the original plan had been to rewire the state by 2015--it was not the main factor, officials said.
“Competitive intensity is one of the factors that suggested we should go through with this,” said Pac Bell President Phil Quigley. “But the real ‘aha’ here is that we found the efficiency of this system would make this a self-funding effort.”
Shares in Pacific Telesis fell $1.375 to $55.25, after surging $3.125 on Wednesday.
Dialing the Future
Pacific Bell plans to spend $16 billion to build a network capable of delivering high- quality sound, video and interactive services to 5 million California homes by the end of the decade, including:
* Movies on demand. Dial up a favorite film whenever you feel like it.
* Time-shifted TV. Wish you hadn’t missed Seinfeld at 9? Ask your TV to rerun it at 11.
* Interactive news. Not satisfied with a sound bite? Ask for previously run segments on the same topic or already-gathered material that wasn’t aired.
* Tele-education. Call up a video of Martin Luther King Jr.’s “I Have a Dream” speech or listen to President Kennedy’s inaugural address through interactive libraries.
* Home shopping. Buy with the touch of a few buttons.
* Video games. Play with friends hundreds of miles away.
