AT&T; Breakup May Deal Key Blow to Local Competition
AT&T; Corp.’s breakup plan could become a major setback for consumers, who were promised vibrant competition in the twin monopolies of cable television and local phone service in return for deregulating much of the communications industry in 1996.
After several years of meager progress, AT&T; had emerged as the nation’s best hope for breaking the cable-phone duopoly by aggressively rolling out local phone service over cable lines.
Now, however, some wonder whether that plan will be slowed or abandoned by AT&T;’s broadband company, which will become an independent cable operator under the company’s restructuring plan.
In addition, AT&T;’s backup route to residential customers, through fixed-wireless technologies, is sure to become a back-burner pursuit once AT&T; Wireless becomes entirely independent, analysts say.
When AT&T; outlined its plan Wednesday, executives stressed that the overhaul changes the company’s structure, but not its strategy. There was no mention of plans to halt its move into the local phone market.
AT&T; said it would divide itself into three parts: wireless, corporate services and cable TV and long-distance phone.
But once those units are separated from the AT&T; parent, they will go their own ways, determining strategies that will win customers and bring funding and support from Wall Street investors. With that in mind, some believe there will be a shift away from local phone service.
If those scenarios unfold, most of the nation’s residential customers will continue to be served by a monopoly cable company (offset somewhat by the growth in satellite services) and a monopoly local phone company, said Gene Kimmelman, co-director of the Washington, D.C., office of Consumers Union.
AT&T;’s restructuring “is a truly cataclysmic market event that demonstrates the failure of telecommunications deregulation policy,” Kimmelman said.
Not everyone sees such a grim picture. But few argue the point that the widely hailed 1996 Telecommunications Act has yet to bring the most sought-after benefits to the nation’s neighborhoods.
In passing the reform measure, lawmakers and regulators had expected that AT&T;, the nation’s largest long-distance provider with 60 million consumer customers, would move quickly into the local phone market to play rival to the entrenched Baby Bell phone companies.
The Baby Bell companies, in turn, were supposed to work to win approval to sell long-distance service in their home regions, and would move into the cable business to spark competition there. That was the plan, and industry leaders signed on to the promise. Nearly five years later, however, the only widespread competition is for business customers, who have benefited greatly from a growing list of phone companies vying for their dollars.
In the residential cable market, local phone companies quickly abandoned plans to sell video services, and cable companies have merely grown larger through mergers, facing only limited competition from satellite providers and newcomer RCN Communications.
Local phone service still is dominated by Pacific Bell, Verizon (formerly GTE and Bell Atlantic), Ameritech and the like. They, too, have grown larger through mergers, putting the control of nearly all U.S. residential phone service in the hands of just four companies, down from seven in 1996.
“It’s true that the world has not changed for 90% of the residential customers of local phone or cable service, but it’s a very different prospect today than it was five years ago,” said Gregory Rohde, an assistant secretary of commerce and head of the National Telecommunications and Information Administration.
He credits the Telecommunications Act with spurring the creation of hundreds of new phone companies that used the law’s stringent equal-access guidelines to help them negotiate connections with reluctant established phone firms.
In addition, smaller companies have emerged to sell local phone service in some regions. Competition also is growing in New York and Texas, two states where the local phone company has moved into long-distance and AT&T; has begun selling local phone service.
However, in those states AT&T; is merely selling local phone service using lines and equipment owned by the incumbent phone company, and leased from the rivals at wholesale prices set by state regulators.
James Andrew, a vice president at the Boston-based Adventis consulting firm, believes the spun-off units of AT&T; may find little reason to pursue the local phone market.
“Nobody knows the answer to these questions right now,” said Andrew. “But there will certainly be a gravitational attraction for the strategy to abandon voice and go back to selling more broadband and video services.”
AT&T; shares fell $1.56 to $21.81 on the New York Stock Exchange after losing nearly 13% Wednesday.
*
WORLDCOM WOES:
AT&T;’s long-distance rival will restructure amid disappointing sales. C4
