Edison to Lease Cable to Firm Hoping to Offer Phone Service

In a deal that would create one of the nation’s largest competitive local telephone networks, Southern California Edison on Wednesday agreed to lease 1,258 miles of fiber-optic cable to a Colorado-based telecommunications company that hopes to offer local phone service in Southern California by the end of the year.

If approved by the California Public Utilities Commission, the deal will create a new rival to Southern California’s two big existing local telephone providers, GTE and Pacific Bell, and catapult Denver-based Intelcom Group past other companies aspiring to compete in local phone service. Terms of the deal were not disclosed, but analysts estimated that Intelcom is paying between $75 million and $100 million to lease the lines for 25 years.

“This relationship is unprecedented in terms of size and scope in our industry,” said J. Shelby Bryan, president of Intelcom. “This is a threefold increase in the route miles we reported . . . and is the most comprehensive network expansion to date in our industry.”

“This is great news for consumers because the more competition, the merrier,” said Bill Bane, a vice president at Mercer Management Consulting’s Washington office who specializes in telecommunications.

“As the telephone companies, the cable TV companies and utilities add more wires to the home, and as that capacity is brought online, there tends to be an overall reduction in price levels” for such services.

Bane added that cable TV and telephone companies have been moving cautiously in modernizing their networks and deploying new services, but that the growing involvement of utility companies in telecommunications is putting them under pressure to move faster.

“Telephone companies and cable companies both know they need to invest because if they don’t, others are ready to eat their lunch,” Bane said.

Although Intelcom does not currently offer local telephone service anywhere, it has already acquired networks in 59 markets and has four under construction.

Intelcom said the lease deal with Southern California Edison would enable it to begin providing 1,300 commercial buildings with phone service by the end of the year, with expansion into residential markets next year. The company will still have to build new lines--or, more likely, lease them from Pacific Bell and GTE--to serve many of the potential customers, since the power company phone lines often do not extend all the way to individual buildings.

Companies such as MFS Communications, MCI Metro--the local phone subsidiary of long-distance giant MCI--and others have for months been seeking to strike deals similar to Intelcom’s in order to cheaply acquire network capacity to offer local phone service. Indeed, Southern California Edison has struck lease deals with those two companies, as well as Pacific Lightwave and Linkatel, but none rivals the size of the Intelcom deal.

The involvement of utility companies in telecommunications is likely to grow as a result of last month’s enactment of a broad telecommunications deregulation bill that frees telephone companies, cable TV operators, broadcasters and utility companies to enter each other’s markets.

Utility companies, which previously were barred from offering telephone service, have a much-prized asset in fiber-optic cable, which is composed of hair-thin strands of glasslike fiber that have a communications capacity thousands of times higher than ordinary copper wire.

The industry now has more than 10,000 miles of such coveted cable in place--originally deployed to monitor and control electric lines and provide communications among workers--and plans to keep building, taking advantage of power poles and rights of way.

Several utility companies have ventured into the telephone business directly, including Arkla Inc., a natural-gas distributor in Little Rock, Ark., that was given approval this year to offer long-distance telephone service.

But Thomas P. McGovern, manager of telecommunications for Edison, said his company is too “risk averse” to get into the telephone business because it would entail huge capital expenditures.