Under the terms of the 1996 Telecommunications Act, the local Bell companies must prove they have opened up their own local telephone markets to competition before they can offer long distance service in those markets.
The Federal Communications Commission is responsible for approving the Bells' long distance applications. State regulators, like New Jersey's Board of Public Utilities, are given a chance to review and endorse the applications, but have no veto power in the FCC's final decision.
So far, the Bells are batting a perfect zero at the federal level. The FCC has denied applications to offer long distance service in Michigan, Oklahoma, South Carolina and twice in Louisiana.
The local phone titans have had marginally more luck at the state level. The companies have submitted applications for state endorsements in ten states, and some state bodies have given them the go-ahead. But their word counts for little if the FCC doesn't follow suit.
And analysts say that is unlikely to happen soon.
Optimists point to Bell Atlantic's work with regulators in New York and Pennsylvania, and say that company may win approval for its New York efforts as soon as mid-1999.
Others are less bullish. "I don't see any of the Baby Bells getting into long distance before the year 2000," said Brian Adamik, a telecommunications analyst for the Yankee Group.
Bell Atlantic working with
Bell Atlantic's campaign in New Jersey is typical of the company's efforts in other states.
The state Public Utilities Board recently set down three issues that the company, competitors, and regulators plan to negotiate over the next few months.
The issues parallel those identified by regulators and critics in other states where Bell companies have tried to expand their operations. The company must unbundle its network services, such as caller ID or call waiting, for resale to competitors. It must set up a way to quickly handle competitors' billing and network access electronically. It must ensure that calls from competitors' customers are handled with the same quality of service as those from Bell Atlantic customers.
Bell Atlantic proposed a series of commitments in these areas yesterday, starting a process of negotiations with regulators and competitors that will culminate in mid-1999.
"The sooner we're allowed into the long distance business, the sooner we can provide customers with a full range of communications products and services," Bell Atlantic CEO William Freeman said in a statement accompanying the announcement.
But ultimately, the company must demonstrate to the FCC that actual competition exists on the ground, not just on paper.
Real competition slow in coming
That's where the companies fall down. "The [Bells] have not seen sufficient competition to allow regulators to say they've opened their markets," said Terry Barnich, president of the New Paradigm Resources Group, a Chicago-based telecommunications consulting firm.
The companies themselves dispute this. Bell Atlantic officials say they have sold more than 35,000 lines to competitors in New Jersey. They estimate that competitors control between 20 and 30 percent of business lines in the state.
If that estimate proves true, it would be a significant argument that competition is real. But that depends on the way competition is measured. Competitors count a feed supporting multiple lines into a business as a single line, while Bell Atlantic counts the highest possible number of lines. Depending on which side is counting, that can mean a given business has 1 or 673 lines. The reality probably lies somewhere in the middle.
Analysts say that most states still have very little true competition at the local level. The Yankee Group estimates that less than 1 percent of residential customers have switched to a competing local telephone company. That average that holds true across most states, Adamik added.
But despite a constant stream of rhetoric about moving into long distance, the Bell companies aren't necessarily in a hurry, Adamik said.
"There's no reason for them to arbitrarily open their markets and let competitors take away their market share," the analyst said. "They're turning in great numbers. They're not feeling the pinch."
The big local companies will likely keep moving as slowly as legally possible, while continuing to apply to regulators after making incremental steps forward, the analyst said.
"The Bells are doing what any rational businessperson would do," Adamik said. "They're doing the bare minimum to comply with the law."