Phone Customers Still on Hold

When Congress unveiled the Telecommunications Act of 1996, its members proudly touted the deregulation measure’s promise of lower prices for consumers and new options for phone and cable services.

But three years later, results remain unimpressive. Few markets have rival companies vying for their business alongside cable and local phone service monopolies.

The Telecom Act removed restrictions on cable companies and cleared the way for long-distance and local phone companies to compete against one another. A condition of the act states that the nation’s regional Bell phone companies cannot sell long-distance service until they prove that rivals have an equal chance to compete for local phone customers.

So far, competition in the business market is thriving. New providers like Qwest and Level 3 are beginning to build their own fiber-optic networks in selected cities, while MCI WorldCom, Sprint and AT&T; are racing to expand their existing networks under city streets nationwide.

“This has been great news for the business user,” said David Roddy, chief telecommunications economist at Deloitte & Touche. “The prices have gone down and they will continue to go down.”

But business competition started well before passage of the Telecom Act, so the law gets only partial credit for that success.

The wireless phone market is also a frenzy of activity these days--but that’s not as a result of the Telecom Act, either. New companies jumped in after federal officials auctioned off new licenses to offer service throughout the U.S.

And while the Internet arena is on fire, that action has been driven largely by other forces.

So the success or failure of the Telecom Act rests primarily on competition in cable and residential local phone service. So far, progress has slow.

Cable prices are rising, and most residents still have just one service provider in their region. Competition doesn’t appear to be imminent because high set-up costs have forced phone companies to drop plans to compete in video, and satellite systems are hampered by their inability to include local broadcast stations.

As for local phone service, many observers say true competition will never materialize as long as the regional phone companies control the copper wires that link most homes to the nation’s phone system.

But others see signs of hope. Phone service is available on a limited basis from such companies as MediaOne and Cox Communications. And recent actions by AT&T; and MCI WorldCom prove that the Telecom Act’s pricing promises may come to pass--at least for residents who buy add-on services such as call waiting and caller ID.

Last week, MCI WorldCom said it would immediately begin selling local phone service in New York state using wires and some equipment leased from incumbent phone company Bell Atlantic.

AT&T;, meanwhile, has been steadily pushing forward with its plan to sidestep the regional Bell companies’ copper links and gain access to neighborhood customers through upgraded cable networks instead.

The company last week forged a broad partnership with cable giant Time Warner to use its lines for phone and Internet service, action that could speed AT&T;’s entry into the local phone market. The new partners pledge to test phone service in several cities this year and to begin offering commercial service in 2000.

AT&T;’s pending merger with No. 2 cable company Tele-Communications Inc., combined with the Time Warner deal, would give the long-distance company the potential to reach about 30% of all U.S. households.

“The sky is starting to clear,” said Jeffrey Kagan, an independent telecommunications consultant based in Atlanta. “It’s not that nothing’s happening, it’s just not happening the way we expected.”

Certainly not. For the first three years of the Telecom Act, the industry went on a merger binge: AT&T; and TCI; SBC Communications and Pacific Telesis; SBC Communications and Ameritech; MCI and WorldCom; Bell Atlantic and Nynex; Bell Atlantic and GTE Corp.

In the background is steady feuding among the companies--sometimes in courtrooms and sometimes at state utility commissions--over nearly every detail of how competition will emerge in the nation’s $110-billion local phone business.

But it appears the legal bickering is coming to a close as the result of a recent Supreme Court ruling that upheld the Federal Communications’ Commission’s jurisdiction over major details of the deregulation.

These new developments could break the competitive logjam, according to Ken McGee, a telecommunications analyst at Gartner Group in Stamford, Conn.

“This flushes the Baby Bells out of the courtroom and into the marketplace finally,” McGee said.

Still, most in the industry acknowledge that the benefits of the Telecom Act will be largely limited to higher-end customers: businesses and residential customers who buy Internet access, cable TV and extra phone features.

“You’ll see some competition if you’re in an apartment in Manhattan or in Los Angeles,” said Roddy of Deloitte & Touche. “But the vast majority of consumers will basically be doing business with their incumbent provider.”

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Competitive Communications

The 1996 Telecommunications Act deregulated the telecom industry and promised widespread competition and lower prices. But in most cases consumers are still waiting to enjoy those benefits. Some major provisions of the 3-year-old act:

* Regional Baby Bells can offer long-distance service right away outside their regions for the first time since they were split off from AT&T; in 1984. They can offer it in their region, however, only after they prove they have opened their markets to competition.

* Baby Bells must share their local networks.

* Companies are free to bundle services, including local, long-distance and cell-phone service.

* The act eliminates all remaining cable TV pricing restrictions by March 31 this year.

Source: Times and wire reports