AT&T; to Move Into Local Phone Business : Telecom: If successful, the move will help spur competition. California is one of its first targets.

AT&T; Corp. sounded its battle horn Thursday, formally announcing plans to enter the local phone business nationwide. And California, along with Connecticut, will be one of the long-distance giant’s first targets.

If successful, AT&T;’s foray into the local phone market will help spur competition in a business that remains almost completely controlled by the seven regional Bell telephone companies--the firms that AT&T; itself spun off more than a decade ago.

Regulatory changes on the state and federal level, as well as new technologies, are now making local competition a possibility, and a host of long-distance telephone companies, cable operators and other firms are hoping to seize the opportunity. But none of the prospective competitors can match AT&T; in financial muscle and technical expertise.

“We are putting a stake in the ground on our intention to provide service,” said Lois Hedgepeth, a vice president for AT&T;’s western region. “If there is any way to get into the market in a reasonable way, you will see us in service very quickly.”

With AT&T;’s recently announced restructuring plans--which will result in another spinoff, this time of the company’s telephone equipment and computer divisions--”we need to establish clearly where AT&T; is moving,” Hedgepeth said.

But neither AT&T; nor anyone else will be able to make a run at the local phone business until a number of highly contentious regulatory issues are resolved. For example, the competitors’ plan to get into the market initially by leasing facilities from the regional Bell companies--and the rates for those leases will have to be determined by local regulators.

AT&T;, along with dozens of other companies, filed in September with the California Public Utilities Commission for permission to offer local phone service when the market is officially opened to competition in March. But AT&T; said it is concerned that Pacific Bell is throwing up the same kind of roadblocks that has stymied local competition in the territories of Chicago-based Ameritech and New York-based Rochester Telephone.

In May, AT&T; filed to provide local service in Chicago and Grand Rapids, Mich., but says that it has been unable to agree with Ameritech on terms that would make competition feasible.

Although a broad telecommunications reform bill is now pending in Congress, it probably will not address regulations on local phone competition in detail--one of the reasons that AT&T; opposes the bill. The White House has threatened to veto the legislation in part because it could leave the Bell companies with too much power.

Industry observers believe the ground rules for local competition will have to be worked out by state regulators--and, in some cases, by the courts.

In California, long-distance carriers aiming for local phone entry got into a huff last month over how local phone companies planned to charge them for certain services. Public Utilities Commissioner Gregory Conlon sent them off to hash out their differences among themselves. On Wednesday, GTE, Pac Bell, Sprint, AT&T; and MCI told Conlon they had reached a resolution.

“Everybody is committed to making this work,” Conlon said. Pacific Bell may not be eager to see competition in its core business, but it is eager to get into the long-distance market--and one is unlikely to come without the other.

While some would-be local phone competitors, such as MCI, have proposed building their own networks--and Sprint plans to get access to homes through cable TV lines and wireless systems--every competitor will have to connect with and make use of the local phone company’s system at some point.

Regulators must determine the prices and conditions at which phone companies offer competitors access to their services. AT&T; said Pacific Bell recently filed proposals for the resale of service, which suggests it is not serious about allowing open competition.

While virtually all phone customers demand flat-rate services, for example, Pacific Bell is proposing to only resell phone services by the minute, a requirement that AT&T; says would make competition impossible. And Pac Bell says it will not resell high-speed ISDN lines, one of the fastest growing and most profitable segments of its business.

Pac Bell also wants to charge competitors a one time fee of $31 and $3.50 a month for each customer that switches carriers but chooses to keep the same phone number, a charge it does not even apply to its own customers when they move to a new location.

Pacific Bell says its charges reflect its costs, and that competitors are unfairly bench marking prices against residential rates that it is forced to provide below cost. “AT&T; would like us to subsidize their entry into our markets,” says Lee Bauman, Pacific Bell’s vice president for local competition.