2HRS2GO: Telecom access debate grows stale

4 min read

COMMENTARY--No other corporate play in America has such unsympathetic protagonists.

For the past five years, regional Bell operating companies have been arguing with long-distance giants and competitive local exchange carriers (CLECs) over the price for carrying phone service over that last mile of copper going into your home. AT&T (NYSE: T), Worldcom (Nasdaq: WCOM), Sprint (NYSE: FON) and their ilk constantly accuse the Baby Bells of stifling competition for local phone service.

The long-distance giants recently began their latest media campaign, through an outfit called Voices for Choices. Don't be fooled by the name, because this is no consumer organization. It's just another industry trade group designed to increase political pressure on the Baby Bells.

I remember sitting in an editorial board meeting roughly three years ago, not long after Bell Atlantic bought Nynex. The visiting Nynex executive insisted there was plenty of competition in local telephone service, at least for businesses; the implication was that competition for residential phone service would soon follow.

I suppose it did in a few places--AT&T has 1 million local customers in New York and Texas. But AT&T is also threatening to pull out. And most of the country's local phone consumers still wait for an alternative to PacBell/Verizon/SBC/BellSouth.

So Voices for Choices runs TV commercials showing a quartet of aging white men chortling as they carve up a bird representing the U.S. local phone market. "We need to protect phone consumers," the voiceover declares in grave tones.

"The average person doesn't even understand these ads," said Ed Young, senior vice president of federal government relations at Verizon (NYSE: VRZ). "They're clearly targeted to the regulators and governors who are in town."

Verizon evidently thinks the "average person" is stupid, and it sums up the attitude of that group. Young's comment underscores the long-distance giants' implied argument: The Baby Bells are arrogant.

Unfortunately, some of their competitors are simply incompetent. AT&T provides the classic example.

Ma Bell has tried to get around its Babies more than once with new technology.

Back when John Walter was company president in 1997, AT&T announced U.S. trials of a wireless local loop system. It never went beyond the testing stage.

And then there was C. Michael Armstrong's big bet on cable. That coaxial cable line was supposed to become the center of your communications universe, carrying everything from digital TV to local and long-distance service to high-speed data access.

Last time I checked, cable telephony hadn't progressed beyond certain testing areas, such as Colorado. Meanwhile, AT&T has given up on salvaging itself, going instead for a break-up. Some reports indicate Armstrong would jump to the cable unit, which indicates he still has faith in cable communications.

He's entitled to his beliefs. At least AT&T tried something different; Worldcom, Sprint and the CLECs remain stuck in neutral on local phone service for consumers. They are content to complain and litigate.

They're not consumer altruists, but the long-distance carriers probably have a point. It is difficult, if not almost impossible, to make money by reselling local phone service. After subtracting carrier fees, there's not much room for a profit.

Now the long-distance giants warn that the telecom industry could fall into the same situation as the electricity market, with power producers charging high prices and forcing blackouts in California. The TV ads end with lights blinking and power going out.

It makes for a provocative argument, but it's a big load of hooey.

Deregulation was never going to bring electric costs down. It wasn't going to wipe out the billions in "stranded costs" racked up by utilities that stupidly built expensive nuclear power plants with the encouragement of government regulators in the 1970s and early ྌs, back when people feared the price of oil would reach $40 or $50 a barrel. And deregulation wasn't going to magically sprout new power plants in places where they were needed. The only thing deregulation could do was introduce market forces, and we're seeing the results today: Electricity demand is skyrocketing in California, and production isn't sufficient; so the costs of electricity rise.

There is nothing comparable in communications. While the electric power grid remained stagnant going into deregulation, the communications network in the United States has expanded at a riotous pace in recent years. The network buildout has been so fantastic that when the industry finally caught its breath, as it has in recent months, network equipment vendors abruptly went into a state of shock when they realized they couldn't grow at 50 or 80 percent rates annually forever.

The Baby Bells are slow, defensive and unresponsive. But that shouldn't matter, because of the technology available these days. Instead of arguing over reseller rights on a copper grid that's several decades old, give us better networks that can force real competition and real savings.

AT&T should have upgraded the cable line on my San Francisco city block, but it hasn't, so my only broadband option is DSL. Sprint, the company always promoting the quality of its nationwide PCS network, ought to figure out a way to use that for affordable local service. Worldcom seems content to collect money from its backbone business.

All of the companies will tell you they're working on alternatives, but the public only sees them screaming at each other. It's a tiresome spectacle. 22GO

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