BACK TO THE FUTURE : ...

Nearly a century after Ma Bell reduced a jumble of competing New York City phone carriers to a single regionwide monopoly, local phone competition is returning to the world’s financial and communications capital.

Upstart local carriers have unleashed a barrage of television, radio and print ads urging New Yorkers to switch carriers--mimicking a battle for long-distance supremacy that providers such as MCI and Sprint have long waged against AT&T.;

MFS Communications Company Inc., Time Warner Inc., Cablevision Systems Corp. and Teleport Communications Group are either competing with incumbent Nynex for local telephone customers in New York or plan to do so in the next few months.

Not since the 1880s, when so many phone companies invaded New York that Manhattan’s skies looked like a spider web of telephone wire, has competition been so keen.

“Local phone competition has the potential to transform the industry much more than long-distance competition,” said William N. Deatherage, a telecommunications analyst for S.G. Warburg & Co., a New York investment house. The battle, he said, will usher in a “new age of packaged services where you will get get your pager, your personal 800 number, your Internet access, your video” from a single provider.

The fight in New York, experts say, is a preview of what soon will happen in other large cities--and, eventually, in neighborhoods across the country--as the last vestige of the telephone monopoly falls. Competitors will be squaring off over the most vital link in the vaunted information superhighway: the $80-billion local phone market.

Local service has taken center stage as the telephone, television and computer industries converge, triggering an overhaul of communications networks of almost every kind. Cable companies are reconfiguring their networks to offer phone service even as local phone companies spend billions of dollars to invade the lucrative video and information services markets.

Ultimately, the budding competition promises to lower telephone and cable TV prices as well as speed the introduction of fancy new services such as interactive TV and electronic home shopping that promise to transform the way Americans work and communicate.

“The entire telecommunications industry and the country’s public policy makers, I believe, have reached a consensus that consumers and businesses alike would benefit from opening local telephone exchanges to real competition,” AT&T; Chairman Robert E. Allen said in congressional testimony last month.

The lion’s share of the local phone market is still controlled by the seven regional Baby Bells--including Pacific Bell in California and Nynex, which serves New York and New England. But that is quickly changing.

On Thursday, the U.S. Senate passed legislation that would further widen competition in the telecommunications market by, among other things, abolishing federal laws that keep long distance companies such as AT&T; from competing for local phone service. (Another version of the bill awaits action in the House.) Besides New York, local telephone competition already is under way in Illinois, Massachusetts, Washington and Iowa, according to Herb Kirchhoff, editor of the State Telephone Regulation Report, an Alexandria, Va.-based newsletter.

*

In California, regulators drastically rewrote phone bills earlier this year by opening so-called local long distance calls to competition. And though the state Public Utilities Commission has taken a conservative approach to deregulation, the PUC now is weighing a plan that would allow wide-open competition in the state’s local phone markets.

For the most part, the Bell companies have fought regulatory changes that allow competitors onto their turf. But where greater competition has appeared inevitable, they have often agreed to accommodate it in exchange for more flexibility in pricing local phone services and the freedom to enter other businesses.

New York state recently moved to free Nynex from traditional regulations, which govern the rate of return it can earn on its phone operations, in return for a commitment by Nynex to slash phone rates--probably by some $375 million a year between nowand 1999. Nynex must slash costs further if it hopes to make any profit under such onerous terms.

“It’s been tough making the transition,” said Paul Calabro, managing director for competitive issues at Nynex, which had earnings of $792.6 million in 1994 on revenue of $13.3 billion. “Some of our competitors operate under more advantageous [conditions] and are using smart marketing ploys. . . . Nynex expects it’s going to be a real dogfight in the marketplace.”

The impact is already being felt along the streets of Manhattan, as competitors bite off lucrative chunks of Nynex’s bread-and-butter business market. Nynex executives estimate that rivals now handle the local routing of more than half of the long-distance calls in a bustling commercial area from midtown Manhattan to the Wall Street financial district.

*

“It’s kind of hard for folks to understand that there is now a second phone company,” said Bernard Walker, a spokesman for New York-based Teleport Communications Group, a unit of a consortium led by Sprint. “They say, ‘Why would I need a second phone network?’ But the fact of the matter is that when you are connected with us, you instantly become wired for the information superhighway,” Walker explained, because of Teleport’s 100% fiber-optic network.

A fiber-optic network is especially attractive to large businesses and other heavy phone users that require highly reliable phone lines capable of transmitting not only voices but also financial records and other data at high speed to branch offices. Nynex uses fiber extensively, too, but its telephone network also has millions of miles of older copper telephone wire.

In any event, even businesses that don’t require fancy technology are switching phone companies--mostly in the pursuit of better service.

Newmark & Co. Real Estate Inc., a New York real estate management firm, moved its local phone business to Teleport after waiting three months for Nynex to install 20 new phone lines.

*

Thomas J. Osborne, manager of engineering services for Newmark, said securing three of Teleport’s high-speed digital lines--which each can carry up to 72 phone lines--turned out to be 40% cheaper than using 20 lines from Nynex. In addition, he said, Teleport can provide far more detailed bills than Nynex, because it tracks local calls with the same precision as long-distance connections.

(For its part, Nynex said the installation delay for Newmark & Co. was due to miscommunication and last-minute changes to the original order.)

The incident illustrates how, early in this new era of local phone competition, service rather than price has emerged as the battlefront. And increasingly the key to winning the service battle is modern technology.

Technology allows the upstarts to convey the illusion that their phone lines extend throughout a city. The truth in New York is that most--including Teleport and MFS--lay relatively few miles of fiber-optic cable in densely populated business districts, then connect these rings at strategic points with Nynex and various long distance carriers, using sophisticated electronic switches to route calls.

These switches, which can cost several million dollars each, have emerged as the linchpins of modern telecommunications. The newest can tie together disparate networks and track calls and data with uncanny accuracy.

On Long Island, Cablevision is using a new generation of switches to link cable TV, long-distance and local phone service in a package with a single monthly bill. Other companies, including Teleport and MFS, say sophisticated switching lets them provide back-up phone connections to customers concerned about reliability and service.

And they do it without the huge overhead that keeps the Baby Bells’ costs high.

At MFS, for example, a crew of just three dozen employees fields calls from customers in all 35 U.S. cities the company serves. Working from desktop computers in Jersey City, N.J., that track the firm’s multimillion-dollar fiber-optic network, they are able to pinpoint problem spots almost instantaneously.

New-generation electronic switches enable MFS to fix many problems from a central office without having to dispatch work crews to the site. And fiber optic cable requires much less maintenance than old copper telephone wire, said William A. Lissemore, director of operations for MFS.

“Our costs are dramatically lower because we have installed fiber,” Lissemore said.

Its competitors’ lean operations help explain why Nynex has been forced to slash 7,000 people from its work force since 1992. “It’s absolutely critical that we do each and every thing more efficiently,” Calabro said.

Competition is being embraced even as a number of vital questions remain about the rules of engagement.

Regulators still have not determined whether new entrants should provide--or help finance--universal telephone access; Nynex officials have complained that the new firms have an unfair advantage because they are not legally required to serve the entire New York market and therefore can skim off the best and most profitable customers.

Also unanswered is the extent to which incumbent local telephone providers and landlords should provide utility rights-of-way and connections to new providers.

And it is uncertain how soon the industry can marshal the money and technical know-how to provide seamless number portability--in other words, the ability for consumers to switch carriers without switching phone numbers. In New York, customers must either switch numbers or pay Nynex a fee for forwarding incoming calls into the new local telephone network.

Bill Tyson, director of customer support for MFS, says Nynex charges about $8 a month to forward calls from each exchange. That fee, he contends, almost wipes out the cost advantage MFS says it can offer its customers.

But the traditional phone companies argue that full number portability would require them to add costly equipment and develop elaborate new mechanisms.

Some landlords, concerned about a potential stampede of telephone installers in their utility rooms--yet at the same time eager to force them to pay for the privilege--are denying access to some of the new providers.

*

“These are significant issues,” said Joseph W. Cece, president of Cablevision Lightpath Inc., the telephone subsidiary of the nation’s fifth-largest cable operator. “We believe that there should be equal access to buildings to provide phone service. . . . A lot of these [landlords] are simply looking for a new revenue opportunity.”

But Newmark’s Osbourne believes the advantages of local phone competition will eventually persuade reluctant landlords to throw open their doors.

“It’s our feeling that, being a building owner, you increase the value of your building to tenants if you can provide access to an alternative local phone provider,” he said. “This is a new day. I think in general the marketplace is opening up for the benefit of everyone.”