Pacific Bell Gets Rival for Local Phone Service : Telecom: With signing of agreement, MFS Communications plans to initially seek out only business customers.

In an important step toward the development of local phone competition in California, MFS Communications Co. on Monday announced an agreement with Pacific Bell that will make MFS the first alternative carrier to compete with PacBell in the local service market.

Although the so-called co-carrier agreement between Omaha-based MFS and Pacific Bell covers both business and residential customers, MFS said it will initially seek only commercial telephone users.

The agreement allows customers to keep their existing phone number when switching carriers, provides for reciprocal compensation between MFS and Pac Bell for calls transferred between their networks and commits MFS to support Pacific Bell’s efforts to find different ways of paying for universal telephone service for low-income Californians.

“With this agreement, our California customers can expect to see more effective competition and expanded choice for local telephone service much sooner,” said Royce J. Holland, president and chief operating officer of MFS.

“The MFS-Pacific Bell agreement should provide valuable benchmarks to other states currently developing and implementing local competition and co-carrier policies,” Holland said, noting that local phone prices have fallen 15% to 20% in some other markets where MFS competes.

Some other would-be PacBell rivals denounced the MFS deal, saying the company had agreed to pay far too much for certain services. “One can only speculate why MFS would make such a bad bargain,” said James L. Lewis, senior vice president for regulatory affairs for MCI, in a statement. “But one thing is certain: By paying these highly inflated prices, MFS has signaled its intention to surrender California’s residential telephone market to Pacific Bell. It adds up to a back-room deal--a gentlemen’s agreement between a monopolist and a company desperate to make a deal regardless of the terms.”

Holland acknowledged that businesses are more likely than individuals to benefit from his company’s fiber optic network. Such networks have typically appealed to heavy telephone users requiring highly reliable phone lines capable of transmitting not only voices but also financial records and other data at high speeds to branch offices.

Holland said that in addition to using its own network, MFS would continue to resell local phone service in areas where it does not now have telephone facilities.

The pact with Pacific Bell is one of a string of recent agreements that alternative phone carriers have struck with regional Bell telephone companies.

The California Public Utility Commission, after encouraging PacBell earlier this year to begin negotiating agreements with rival carriers, recently passed rules aimed at increasing local telephone competition. In July, the commission ordered the opening of the state’s local phone market, beginning next Jan. 1.

The agreements are seen as ushering in a new age of competition and speeding the introduction of new services such as electronic home shopping, high-speed telecommuting and video transmission over telephone lines.

The rivalry will be especially spirited in California, the nation’s largest local phone market with one out of every eight telephone exchanges in the country. California generates about $6 billion annually in telephone revenue.

“These agreements constitute the rules of engagement,” said Herb Kirchoff, editor of the State Telephone Regulatory Report, an Alexandria, Va.-based newsletter. “They are essential for further development of competition.”