Bell Atlantic Wins OK to Offer Long-Distance Service in New York

Local phone company Bell Atlantic Corp. on Wednesday was granted entry into the New York long-distance market, marking the first time a Baby Bell has been allowed to compete in long-distance since AT&T; Corp.’s breakup in 1984.

The Federal Communication Commission’s unanimous approval came four years after the 1996 Telecommunications Act promised to open up wide-ranging competition in phone services. AT&T; said it will appeal the decision.

Many Californians may see more competition and lower phone rates as early as next summer because of the Bell Atlantic case.

SBC Communications Inc., which owns Pacific Bell, California’s dominant local phone company, said Wednesday that it may apply in April for FCC approval to enter the long-distance market in the state. SBC will also apply next month to enter the long-distance market in Texas.

The FCC has 90 days to review each proposal. So PacBell could enter the California long-distance market in its local service areas by next summer, although the state Public Utilities Commission must also approve this request.

SBC called the Bell Atlantic decision a favorable sign. “It does give us a window into what the FCC is looking for,” said Saralee Boateler, an SBC spokeswoman.

But the conditions for Bell Atlantic in New York may not easily be replicated. Bell Atlantic made large concessions in opening its local-calling network to competitors AT&T;, MCI WorldCom Inc. and Sprint Corp., said Gene Kimmelman, co-director of Consumers Union in Washington. He expressed skepticism about the willingness of SBC to make similar compromises soon.

By law the Baby Bells, or the regional Bell operating companies, must open their local markets to competitors before they can sell long-distance in those markets. These companies, established as regional monopolies after the AT&T; breakup, are treated uniquely by regulators.

California already has a major local-phone company competing in long-distance. GTE Communications Corp., the state’s second-largest local phone carrier, is not subject to similar restrictions. GTE already offers local and long-distance service in Southern California. GTE’s pending acquisition by Bell Atlantic should be completed early next year.

Before the Bell Atlantic decision, the FCC had denied five Baby Bell applications to enter the long-distance market since 1997.

“The Berlin Wall of local phone monopoly in New York state has finally been demolished and hauled away,” FCC Chairman William Kennard said. But he noted that the agency rejects a “cookie-cutter” approach to opening competition, and that Bell Atlantic’s deal represents a high standard for other companies to meet.

Various experts agreed that California will ultimately be opened to competition across the board for long-distance and local phone services. But how soon that happens depends on when SBC decides it can make more money in long-distance than it will lose by opening up its local networks to competitors.

Bell Atlantic spent hundreds of millions of dollars and thousands of employee hours over 2 1/2 years to gain FCC approval, said Reed Hundt, who chaired the FCC when the Telecommunications Act was passed. He noted that the company faces heavy penalties if it fails to maintain adequate competitor access to its local phone networks.

“Most people believe that Pacific Bell has not made the same effort as yet,” Hundt added. But he predicted that SBC will eventually follow suit.

But PacBell is unlikely to face much competition in residential local phone service in California because of the way regulators have structured calling rates here, said Mitch Wilk, a San Francisco telecommunications analyst and former president of the state PUC.

He said that PacBell benefits from subsidies that help it keep local basic phone service priced very low, and any prospective rivals may not receive those subsidies from the PUC. “Who can compete against an $11.35 basic rate in California? The answer is nobody,” Wilk said. “But that’s not PacBell’s problem.”

But that should not stop regulators from approving PacBell’s application to sell long-distance service in California, he said.

Former U.S. Sen. Larry Pressler of South Dakota, co-author of the 1996 Telecommunications Act, said the Bell Atlantic case may speed the process for similar competition in other states. But some consumer advocates were less upbeat. “The FCC got this one right, but unfortunately they are failing to do so in virtually every other area,” said Consumers Union’s Kimmelman.

He cited the rapid consolidation of the nation’s telecommunications industry through mergers and acquisitions as evidence of the law’s failure to deliver to consumers all the intended benefits of more competition. Meanwhile, rates for cable TV and long-distance fees have risen in many areas, Kimmelman said.

Staff writer Karen Kaplan and Bloom- berg News contributed to this report.