PacBell Pulls Plug on Vaunted High-Tech Plan

For months now, Pacific Bell has been digging up portions of Los Angeles in the name of the future. “We promise. It’ll be worth it,” read the fliers distributed to thousands of residents.

In exchange for the noise and inconvenience, the selected Southland neighborhoods were to be some of the first in the nation to get hooked up to the fabled information superhighway. Then the future got put on hold.

Citing costs, competitive pressures and lack of cooperation from the city of Los Angeles, PacBell last week began shutting down its ambitious advanced communications project here after spending nearly $100 million to get it started.

The company is also curtailing its network construction efforts in Orange County--but will plow ahead in San Diego and San Jose, where it faces a stiffer threat from powerful cable television firms that soon hope to offer local phone service.

PacBell’s abrupt withdrawal from Los Angeles is a lesson in how quickly the beguiling visions of high-tech can melt into the ether. Other telephone and cable companies nationwide are also scaling back their plans for brave new video systems, their wings clipped by high costs and technology that’s not quite ready for prime time.

The retreat is also a pointed reminder that the hallowed telephone industry principle of universal service does not apply to the next generation of telecommunications. Who gets tomorrow’s technology first will depend entirely on where companies like Pacific Bell choose to deploy it.

In this case, that means Los Angeles businesses that had looked forward to the competitive advantages of new interactive technology and high-speed Internet access are out of luck.

Residents who had been promised the ability to order movies, interactive games, education and home shopping from their couch may now have to wait indefinitely.

And several hundred workers who left other jobs at the company to be part of the network of tomorrow now face relocation or layoffs.

“It’s not going to be in the short term, but we hope at some point to come back and finish the build in Los Angeles,” said Steve Harris, vice president for external affairs of Pacific Telesis Corp., PacBell’s parent company. “We don’t consider it abandoned--we just won’t be using it for a while.”

Behind construction placards still bearing the message “Bringing You the Advanced Communication Network,” phone workers this week were busy mothballing the system, which already passes nearly 75,000 homes.

In the west San Fernando Valley, trenches that were to have held lengths of fiber cable are being filled with concrete. In Inglewood, PacBell technicians are sealing off the dangling ends of thousands of feet of aerial lines strung in recent weeks.

In Calabasas, where nearly 700 homes have been fully wired with the new technology, phone company workers are dismantling the boxes--one near every other home--that would have made the system operable.

“I’m very disappointed,” said Calabasas Mayor Dennis Washburn. “This was an opportunity for our community to be in the forefront of new media services. Now it’s all dressed up with no place to go.”

The digital network, a combination of fiber-optic and coaxial cable that was to replace the phone company’s copper wires, was touted as a more “intelligent” communications system. In addition to making it possible to offer new services, it would also have alerted the phone company to network disruptions and allowed for clearer sound on routine calls.

PacBell says difficulty in getting the necessary construction permits from the city of Los Angeles contributed to the decision to pull up stakes.

“We couldn’t continue work without the permits,” said Pacific Telesis Vice President Gene Sherman. “We had workers here that didn’t have work and we had work in the Bay Area that needed workers.”

City officials said that more than 100 of the permits PacBell had requested were not issued because of concerns both with the aesthetics of the boxes the company wanted to install--which are noisier and much larger than traditional phone boxes--and negotiations over a franchise fee that would be comparable to the 5% of revenue the city receives from local cable operators.

But the city says any attempt to blame Los Angeles for the phone company’s retreat is scapegoating. PacBell is struggling over similar issues in every area it has targeted for the new network. The only city the phone company has signed a franchise agreement with is San Diego.

“We can never put the city in the position from stopping a service to Angelenos that Angelenos want,” said Michael Keeley, the city’s chief operating officer. “Having said that, it is also our obligation to make sure the city gets fairly compensated.”

Keeley said Mayor Richard Riordan had called Pacific Telesis Chairman Phil Quigley in the fall to facilitate the negotiations. “The mayor was clear in saying that with the right willpower we could work this out,” Keeley said. “PacBell declined our offer. They had made a business decision not to invest in Los Angeles.”

Still, said Jack Kyser, an economist at the Los Angeles Economic Development Corp., the city could have been more forthcoming.

“You have this competition for new infrastructure now, and we can’t do things that discourage further investment, especially when it’s something like this that would have been an asset for us over the long run,” he said. “You have to say at some point: Is this going to put us at some sort of competitive disadvantage?”

While holding the city partially responsible, PacBell acknowledges that the move is driven almost entirely by pressing competitive concerns. With deregulation at the federal and state levels, cable companies are expected to dive into the local telephone business. In the Bay Area, PacBell confronts the nation’s largest cable operator, which with a recent acquisition will provide cable service to nearly 90% of the region’s homes. And in San Diego, Time Warner Cable and Cox Cable, the No. 2 and No. 3 cable operators, also pose a significant competitive threat.

But cable franchises in Los Angeles are fragmented and thus do not offer such direct competition. Los Angeles also has the lowest cable subscription rate in the state, and the highest number of subscribers to the “lifeline” service the phone company provides for those who cannot afford regular phone rates.

PacBell has also decided that offering traditional television programs carries more profit potential than newfangled interactive services. Thus PacBell last spring purchased a wireless cable company that will enable the firm to offer video service to 5 million customers in Los Angeles and Orange counties as well as Riverside and San Diego.

The system will not allow for any of the interactive services, from movies to tele-medicine, that PacBell had promised earlier, but it will be considerably less expensive than new cables.

PacTel officials note that wireless cable will be faster to deploy, and that subscribers will receive the same video programming through the firm’s Tele-TV joint venture with Bell Atlantic and Nynex that customers in San Jose and San Diego would.

But that is small compensation to Valley resident Daniel Stav, who earlier this month watched phone company technicians drill a hole in his street to hold the info highway, only to fill it back up again four days later still empty.

“They asked me to put the dog inside because they were going to be pouring cement, and I said, ‘Wait a minute, you haven’t finished!’ ” recalled Stav, who had just received a letter from Pacific Bell describing in glowing terms the next era of communication services he would have access to. “Then they told me they were bailing out of L.A. County. All the neighbors are pretty upset. We were really looking forward to it.”

Of course, not everyone was entirely gung-ho on letting Los Angeles be the guinea pig for untested technology. One reason several phone companies have revised their grand interactive plans is because it was not clear that customers would be willing to pay for the new services.

“I have mixed feelings,” said Los Angeles Councilwoman Laura Chick, whose district was the center of PacBell’s initial efforts. “I don’t like losing jobs. I don’t like losing advanced technology. But maybe this wasn’t the right time. I didn’t hear my residents crying out for these services.”

Still, participants in the test network the phone company has set up in San Jose sound enthusiastic. “To me it’s fun to get to try out all this new stuff,” said Mace Volzing, who has been receiving video programming from PacBell since October. “I’m on the list for video on demand and soon they’ll have Internet access too. That’s too bad about L.A.”

Many of the workers involved with the Los Angeles project would certainly agree with that assessment. An official at AT&T;, PacBell’s subcontractor for part of the project, said about 150 employees in Los Angeles will be laid off as a result of the move, along with as many as 300 in Orange County. PacBell says it hopes to find jobs for its 260 displaced workers elsewhere in the company.

But many--especially those who own homes in Los Angeles--are wishing they had not gambled on the interactive future. Several said the company recruited them from less strenuous jobs that involved a lower safety risk with the promise of long-term security.

“They told us broad band was going to be built up and take over all the copper and the only way to be safe was to go over to broad band and be a part of the new technology,” said Manuel Santiago, 30, who had previously worked as a service technician in Huntington Park. “I came over here because I wanted a job with this company for a long time.”

And even those whose jobs are safe are unhappy. Said John Fontis, a supervisor at AT&T;: “To see it all go to waste after coming out here and building it is kind of sad.”