PacBell Again Seeks OK for Long Distance

After three years and one failed attempt, Pacific Bell is again poised to seek state permission to offer long-distance telephone service in California--a move that would profoundly change the telecommunications landscape in the nation’s largest phone market.

The new long-distance application, which could be filed as early as today, is the culmination of years of regulatory wrangling, skirmishes with competitors and behind-the-scenes systems testing aimed at proving that PacBell has sufficiently opened its local phone market to competition, and thus should be allowed into the long-distance business.

Officials at PacBell, the state’s dominant phone company with more than 17 million phone lines in service, have been salivating over the long-distance market in California since the 1996 Telecommunications Act cleared the way for the so-called Baby Bells to offer long-distance once certain requirements were met.

Since then, it’s been a high-stakes battle nationwide, with few as aggressively fought as the one in California, where the long-distance market is said to be worth more than $16 billion a year--equal to 20% of the nation’s total.

With a filing of more than 5,000 pages, PacBell is hoping to win approval from the California Public Utilities Commission in August, and then the Department of Justice and the Federal Communications Commission in time to begin selling long-distance service by the end of the year.

Some observers believe that schedule may be wishful thinking, because opponents must be given time to submit comments before a draft decision is issued. In addition, three of the PUC’s members are relatively new to the commission, and given the state’s energy crisis they probably have not kept up with the volumes of data filed by PacBell over the last three years.

Jack Leutza, chief of the PUC’s telecommunications division, said, “We’re definitely in the home stretch, but there are an awful lot of things to do in that home stretch.”

Consumer groups and other critics believe PacBell’s move into long-distance would only extend the company’s near-monopoly hold on the residential phone market throughout the state at a time when rivals are drowning in red ink or dropping out of the market altogether.

PacBell, owned by San Antonio-based SBC Communications Inc., believes its move into long-distance will bring lower prices and greater competition to California customers. A study by the Telecommunications Research and Action Center, a consumer advocacy group that tracks long-distance pricing, concluded that consumers have benefited from lower prices in New York, where Baby Bell Verizon Communications Inc. now sells long-distance.

SBC has won entry to the long-distance market in Texas, Kansas and Oklahoma. It recently withdrew a criticized plan for entering the Missouri market. In addition to New York, Verizon also has won entry to Massachusetts.

All of the Baby Bells have standing permission to sell long-distance in regions where they are not the local phone provider, but the companies have rejected that strategy in favor of selling consumers packages of services, from local to long-distance and Internet access.

SBC has aggressively lobbied for PacBell’s case in Washington and Sacramento.

The effort has involved a cadre of high-level executives, including SBC Chairman Edward Whitacre, who sources say has had at least two meetings with Gov. Gray Davis. Davis is not a member of the five-person PUC, but he named three of its members and it’s an open secret that he exerts substantial influence over the commission.

PacBell contends it has earned its way into long-distance by establishing connection agreements with 141 rival phone companies in California. The company says those competitors serve more than 3.3 million lines in the state--less than 15% of the total.

Still, critics point out that the vast majority of those lines are in the business market, where competition has not been tough to find. The PUC estimates that rival phone companies hold less than 250,000 local residential lines statewide.

PacBell’s competitors have found themselves in even worse shape in recent months, partly due to increased costs and, the companies claim, to difficulties in routing orders through PacBell.

Verizon Communications has announced plans to end service to about 70,000 California customers who had been buying both local and long-distance service. Sprint Communications has filed for permission to leave the California local phone market, citing the high costs of leasing copper lines and other network components from PacBell.

AT&T; stopped selling local service in California long ago, and now serves only existing customers. In addition, high-speed Internet access providers such as Covad Communications Group Inc. and the now-defunct NorthPoint Communications Inc., sustained huge losses in an attempt to gain a foothold with residential customers.

Only cable companies AT&T; Broadband and Cox Communications Inc., which have their own lines into neighborhoods, have made notable headway against incumbent phone companies.

PacBell will make the case that failing companies in the residential market are dying because of their own poor business plans, and not because the market has not been opened to them.

PacBell, however, has been criticized by the PUC on several consumer phone matters in the last year. It still faces record fines and penalties--as much as $49 million--stemming from PUC findings that the phone company’s sales methods and selective disclosures were misleading to customers.