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Yellow page alliance called unfair

Switchboard alleges that Netscape, Yahoo, and five Baby Bells are trying to monopolize online directory listings business.

Switchboard, a leader in online yellow page directory listings, has sent a letter to Rep. Edward Markey (D-Massachusetts) and the Justice Department, alleging that Netscape Communications (NSCP), Yahoo (YHOO), and five Baby Bells are trying to monopolize the directory listings business on the Net.

The allegation marks one of the first challenges to the Bells' monopoly powers as they begin to do business online. Industry analysts say it is unclear whether Switchboard has a strong legal case, but they believe that the charges could stir debate on Capitol Hill and among federal agencies, where the actions of telephone companies are being closely scrutinized after recent deregulation.

"Because you have been a leader in fighting abuses within the telecommunications industry, I want to bring your attention a disturbing business development whose anticompetitive effects will harm many businesses and consumers unless promptly halted," said the letter to Markey, a copy of which was obtained by CNET's NEWS.COM. "As one likely result, businesses seeking to advertise on Internet yellow pages will be forced to pay higher prices for their advertisements."

The letter, dated Monday, alleged the following:

  • In April or May, Yahoo "apparently entered into an agreement with Netscape under which Yahoo obtained the exclusive right to sell advertising within the Netscape Yellow Pages area."

  • In July, Yahoo said it had struck a deal with five of the seven Baby Bells--Ameritech, BellSouth, Nynex, Pacific Bell, and US West, giving those companies "a monopoly of prime access to all Netscape users" seeking yellow page listings.

  • Netscape and Yahoo have eliminated certain links that let Internet users access Switchboard and other directories, according to the complaint. Switchboard says it was told by Netscape that it could not advertise its directory on Netscape because of its "exclusive" agreement between Yahoo and the Baby Bells.

    "Historically, the [Bells] have held a dominant position in the paper yellow pages market," the letter said. "Until Yahoo entered into its agreements with Netscape and the [Bells], the Internet had promised an era of greater competition in the yellow pages market. Now, however, Yahoo's exclusive arrangement with the [Bells] on Netscape's Web page will inevitably diminish competition in providing directory services to users."

    The letter also cited a lawsuit filed in Dallas County District Court against Netscape and Yahoo by GTE New Media Services. It alleges that Netscape violated its contract with GTE "by giving the [Baby Bells] a monopoly on prime access."

    "The effect of Yahoo's and Netscape's actions, which make it difficult for consumers to reach the Internet yellow pages and compete with Yahoo and the [Bells], has foreclosed and will continue to foreclose the competing providers from a significant share of the market," the GTE lawsuit states.

    Bell executives who were familiar with the letter could not be reached for comment. But Jim D'Archangelo, an analyst with the Kelsey Group, said he had spoken with Ameritech, Pacific Bell, and US West executives today and that they all had denied the charges.

    "The contracts that Yahoo signs are at Yahoo's discretion rather than our direction," a Netscape spokeswoman said today. "However, we don't believe that Switchboard's claims are plausible." A spokeswoman for Yahoo said the company had not seen the letter and had no immediate comment.

    Switchboard said it hadn't sent a copy of the letter to the two companies, and it hasn't received a response from Markey's office. Colin Crowell, a telecommunications policy analyst for Markey's office, said he hadn't seen the letter either.

    Switchboard is the online directory selected by America Online.

    "We're saying that under the telco [deregulation] act, the Baby Bells do not have the right to do any deals of this sort," said Switchboard president Douglas McIntyre. "It precludes them from acting as a unit."

    He added that the company wasn't complaining that it lost out on the Netscape-Yahoo ad deal. It could have gone to BigBook or another competitor, but "[Netscape and Yahoo] are not permitted under law to make this sale" to the Baby Bells as a group, he said. McIntyre signed the letter that was sent to Markey and Donald Stern, the U.S. attorney in Massachusetts.

    In June, Ameritech, BellSouth, Pac Bell and US West joined together to create a cobranded Web site to generate traffic for their regional yellow page sites. It shows a map of the United States, where users can link to the yellow page directories of each one.

    "We think what we've done is very pro-competitive and good for the Internet yellow page businesses," said Jon Lentz, a spokesman for US West Dex, the telco's yellow page business. "Online directory businesses are free to enter into promotional agreements with any Web site. The alliance that we have doesn't foreclose any opportunities. By working together, our businesses are able to achieve the same national scales of economy that nationally focused [Net] directories enjoy."

    Lentz added: "Anybody can send a letter. We'll have to see if these claims are pursued."

    One analyst agreed that Switchboard's charges would be difficult to prove. "Their claims of monopolies are not as strong as if they were talking about their local phone services," said Boyd Peterson, director of consumer communications for the Yankee Group, a telecom consulting firm. "If any company could secure those kind of deals with Yahoo, I'm sure they would."

    D'Archangelo wasn't sanguine about the complaint, either. "I don't think there's collusion going on. It was more that they were shut out of an individual deal [with Netscape and Yahoo] than four [telcos] trying to grind down competitors."

    But he added: "I think the involvement of Congressman Markey is potentially going to cause them some unrest, because that's the kind of pressure that is very hard to take in Bell land." One reason for this, he said, is that the Baby Bells are wrestling with lawmakers and regulators on much bigger issues, such as getting into the long distance market.