GTE Deal a Turning Point in PacBell Rivalry
In a milestone deal that highlights an emerging rivalry between the state’s two major phone companies, GTE recently invaded Pacific Bell’s turf and pocketed a $25-million service contract with USC.
The multiyear pact, revealed quietly last month after yearlong negotiations, gives GTE a high-profile win and a full-service phone switch within striking distance of big PacBell customers in the heart of downtown Los Angeles.
“This puts GTE smack in the middle of Pacific Bell territory,” said Michael Noll, a professor at USC’s Annenberg School of Communication. “I think it’s an interesting move and an innovative move.”
It’s also a welcome respite from the embarrassing saga at GTE’s directory division, which admitted last month that it inadvertently published unlisted phone numbers and addresses in specialty directories used by telemarketers in Southern California.
GTE isn’t saying much about its expansion plans, but it’s clear that the USC contract is both a good piece of business and a sign of things to come.
“It’s really not about franchise territory anymore, it’s about customers,” said Phil Trammell, vice president of sales for GTE in California.
These days, many major customers have far-flung offices, Trammell said, “and we want to expand our abilities to serve them, and if that means we on occasion go into an area served by PacBell, then we have to consider that on a case-by-case basis.”
Until the Telecommunications Act was passed in 1996, a complex web of regulations kept local phone companies out of one another’s markets and out of long-distance service. But even after the new law struck down some of the restrictions, the regional phone companies--the so-called Baby Bells plus GTE--seemed more interested in offering new services than in crossing territorial lines.
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The USC deal is “at the vanguard” of a new movement across regional boundaries, said John Leutza, head of the telecommunications division at the state Public Utilities Commission.
SBC Communications, PacBell’s parent company in San Antonio, recently pledged to sell local phone service to residents and businesses in 30 big-city markets outside its region--but only if its recently announced merger with Baby Bell Ameritech is approved.
“I think, for the most part, the Bell operating companies didn’t look at each other as the threat; they looked at new companies and the long-distance carriers as the threat,” said Alvin Hopkins, who negotiated the GTE agreement as USC’s executive director of communications.
“But GTE tore up the streets and laid fiber to USC from Santa Monica,” he said. “I was surprised by the whole thing.”
PacBell said the incursion is evident from the growing number of GTE phone service vans traveling downtown streets.
“They’re really pushing hard in our territory, especially in downtown Los Angeles,” said Carmen Nava, Pacific Bell’s regional president in Los Angeles. But, she added, “there’s more of an incentive for them to move into our territory than for us to move into theirs.”
Indeed, PacBell is California’s dominant phone company, with 17.6 million lines and 78% of the state’s local phone market, including most of the state’s most populous cities.
GTE, for the most part, serves less populated regions in the state. In Southern California, however, it serves Long Beach, Santa Monica, parts of Los Angeles and other lucrative markets.
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Still, USC is PacBell country, and the company had plenty of opportunity to scoop up the contract itself.
In 1991, USC was growing tired of the high maintenance, expansion and upgrade costs that came with owning its own on-campus phone switch. So the university went to PacBell, which already provided local phone, Internet and USC network access lines and other services at facilities not served by the campus switch.
“They were interested, but they also wanted to remove [the switch] from campus and put it somewhere else,” Hopkins said. “Physically, it doesn’t matter where the switch is, but we were looking at a broader relationship--the whole relationship between whoever the company would be and the university.”
PacBell dropped out of the running, as did several other companies, and eventually GTE stepped in. But PacBell reconsidered once USC said it was close to completing a deal with GTE.
“They got really interested then, and they suddenly wanted to make another bid,” Hopkins said. USC pledged to reopen talks with PacBell if the GTE talks stalled.
USC was impressed with GTE’s involvement in higher education, including its GTE Foundation activities, and the company’s position as the telecommunications provider for the nearly 80 annual tournaments of the National Collegiate Athletic Assn., as well as for a number of USC’s counterparts elsewhere in the Pacific 10 athletic conference.
“GTE was winning points in all those areas,” Hopkins said.
The university has also talked to GTE about a range of potential sponsorships and projects, such as redeveloping the Figueroa Street corridor, Hopkins said. No formal agreements have come out of those discussions yet, the two sides said.
“There is certainly no link between what the GTE Foundation does with its money and what I try to do with USC, but I certainly think there is a possibility that the level of foundation participation might be stepped up,” said GTE’s Trammell.
Under the seven-year deal, which includes options for an additional three years, GTE will upgrade and take ownership of the USC switch and provide high-capacity video service and 12,500 local phone and high-speed Internet access lines on USC’s University Park main campus and its East Los Angeles Health Sciences campus.
PacBell will maintain its existing contracts with USC, and so will local phone competitor Teleport Communications Group and long-distance carriers AT&T; and MCI.
“Technically, [PacBell] didn’t lose anything, except pride,” USC’s Hopkins said. “It’s just the fact of having the GTE logo stamped in the sidewalk here.”
