FCC Allows Multitude of New Firms Into Local Phone Market

The Federal Communications Commission, as expected, approved rules Thursday that will open the $100-billion local phone market to competition for the first time since the AT&T; monopoly developed at the beginning of the century--and Californians are expected to be among the first to enjoy the resulting sharp reductions in local and cellular phone rates.

The new rules, mandated by the telecommunications deregulation law that Congress enacted in February, spell out the terms under which long-distance carriers, cable television companies and anyone else can compete with Pacific Telesis and the six other Baby Bells to provide local phone service.

Consumers will now begin to see a raft of competitive local phone service offerings--accompanied by high-powered marketing campaigns from the likes of AT&T;, GTE, MCI, Pacific Bell and Sprint--though prices for basic local service will not be substantially lower in the short run.

Under the new rules, the seven regional Bell companies will be required to lease pieces of their local phone networks--switches, loops, operators, directory assistance facilities and even repair workers--to competitors at discounted rates.

The regional Bells will also be required to cut the fees they now charge to cellular and other wireless phone companies that must enter a local network each time they have a customer on the line who wants to complete a call. The rates will fall to about 0.3 cent per minute, down from 3 cents now, and the wireless industry expects savings of $800 million a year.

The FCC ruled that the states, not the federal government, will develop the specific procedures for implementing the new rules, though they must be consistent with FCC guidelines. States will also set the interconnection rates for leasing the computer programs, hardware and phone lines the regional Bells now own--though the FCC did say resale rates should be in a range of 17% to 25% off the Bells’ retail prices.

State regulators, who have been wary of federal moves to preempt their authority, generally welcomed the rules approved Thursday.

The FCC order “is consistent with the actions taken here in California,” Tim Sullivan, a telecommunications advisor to the California Public Utilities Commission, told Bloomberg Business News.

Separately, President Clinton on Thursday nominated the FCC’s top telephone regulator, Gina Keeney, to a vacant Republican seat on the five-member commission Thursday. Keeney joined the FCC in 1994 after serving as the GOP counsel to the Senate Commerce Committee for nine years. The nomination requires Senate approval.

While the Baby Bells and some others praised the telecommunications decision--which will be formally issued as a 600-page set of rules next week--as a fair balancing of competing interests, the long-distance companies were unhappy about the amount of authority given to the states.

Since the Bells have close relations with local lawmakers, the long-distance companies believe state-level decisions are less likely to be made in their favor.

“Now it’s up to the states to clearly and consistently interpret the new rules and to maintain vigilant oversight against the anti-competitive practices of the Bell companies,” said Bert C. Roberts Jr., chief executive of MCI Communications Corp.

Another FCC decision, to put off until 1997 an overhaul of the current access charge system that requires long-distance carriers to pay a fee for access into regional networks, also appears to favor the Bells and angered the long-distance giants.

“AT&T; is greatly encouraged by the action the FCC has taken to open local markets to real competition, although we’re disappointed it has postponed cost-based access reform for up to 10 months,” said Robert E. Allen, chairman and CEO of AT&T; Corp.

While many say telecommunications reform will yield cheaper services and greater choice for consumers, Henry Geller, board member of the Alliance for Public Technology and former general counsel of the FCC, said he was afraid that the local phone rates would not be as low as they could be because competitors would have little incentive to build their own networks rather then simply resell existing facilities.

Regulators and telephone executives say it will take nearly five years for most of the country to be able to choose their local service providers.

“With today’s order, the commission articulated a clear resolution to the complex issues of governing network interconnection,” said Heather Burnett Gold, president of the Assn. for Local Telecommunications Services. “Now it’s full speed ahead for the competitive local exchange carriers.”