In a move that further opens up the telecommunications market to competition, federal regulators today gave Bell Atlantic the green light to offer long-distance service in New York.
It's the first time that a big local phone company has won approval to offer long-distance service within its local territory, allowing it to compete head-to-head with telecommunications giants AT&T, MCI WorldCom and Sprint.
The order also sets up a
much wider range of competition between local and long-distance companies. Today's decision will allow Bell Atlantic to offer consumers packages of local and long-distance services, as well as high-speed Internet and wireless services. AT&T has spent close to $110 billion over the past year acquiring cable companies to offer its own package of bundled telecommunications services.
For consumers, Bell Atlantic's entry into the market means new competition, new choices, and likely lower prices in the future.
"This is a transforming event for Bell Atlantic," CEO Ivan Seidenberg said during a press conference after the decision. "The benefits will be immediate. We have a host of innovations in the pipeline, so you can expect a constant stream of announcements as we roll out the long-distance business."
The Federal Communications Commission decision today caps a four-year wait by Bell Atlantic, a local firm which had worked to show regulators that it had opened its local monopoly to competition.
As part of the landmark Telecommunications Act of 1996, Congress offered the possibility of long-distance service to the Bells as an incentive to open their local markets. The FCC has blocked five previous applications on the grounds that companies had yet to adequately open their markets to competition.
But this time, the rigorous testing process imposed by New York officials paid off, the FCC said.
"Today we are able to declare that the Berlin Wall of local phone monopoly in New York has been demolished," FCC chairman William Kennard said at a press conference announcing the order.
The company aims to flip the switch for service in New York as soon as the order takes effect on Jan. 3. That week, the company said it would announce a stand-alone long-distance offering with a single flat rate and no extra fees, as well as a package of long-distance and local service. Details on the pricing would be released Jan. 4, the company said.
The service offerings will initially target the low-end of the consumer market, gradually working up to high-end services for the business market, Seidenberg said. The company hopes to begin adding long-distance service for businesses in 30 to 45 days, he added.
But it's the basic local-long distance link that will prove most valuable in the short term, analysts said.
"It is clear that from the consumer perspective, the most compelling bundle is local and long-distance service," Boyd Peterson, an industry analyst with the Yankee Group, said. "I wouldn't expect they would radically alter the pricing paradigm--that wouldn't make good business sense. But I think they will make an attractive offer and let inertia take its course."
It's the idea that consumers are likely to sign up for any service with a company they are most familiar with--in this case, their local phone company--that initially worried the FCC and competitors, analysts said.
Yet Bell Atlantic projects that it will win about 25 percent of New York's $2 billion long-distance market in the next three to four years. Legg Mason Precursor Group analyst Mike Balhoff said that estimate was conservative, however, as he expects Bell Atlantic to grab that market share in about two years.
Today's decision does pave the way for other local phone companies looking to offer the same array of services in their service regions. But Kennard warned that the other Bells will have to do more than simply copy Bell Atlantic's work in New York.
"It would be a mistake to conclude based on this order that this is a one-size-fits-all determination that will apply in cookie-cutter fashion to every Bell in the country," Kennard said.
But analysts said other Bells would nevertheless have a much easier time figuring out what they need to do to win approval. SBC Communications is expected to be the next Bell in line to apply for long distance in Texas.
The decision was met with some dismay from companies such as AT&T, which said Bell Atlantic has yet to sufficiently open up its local phone market to competitors.
"Today's decision shortchanges the people of New York because it does not ensure that Bell Atlantic's local phone markets are truly open to competition," AT&T general counsel Jim Cicconi said in a statement. AT&T expects to seek "prompt review" of the FCC's action through an appeals court, Cicconi added.
