The Federal Communications Commission has blocked all previous attempts by the Baby Bells to enter the long distance market, but industry observers believe that Bell Atlantic will get the green light this time.
Approval to enter the long distance market is the last element Bell Atlantic needs to compete head-to-head with AT&T to offer businesses and consumers complete packages of Internet, phone, wireless, and even television services. And if Bell Atlantic wins long distance approval, other Baby Bells around the country are likely to follow in its footsteps, analysts say.
AT&T has spent billions of dollars to acquire cable companies so it can provide those full-service packages. The strategy is geared to prepare the giant for when the big local companies begin invading its long distance turf, analysts say.
"This is likely the most significant telecommunications event of the year," said Scott Cleland, telecommunications policy analyst for the Legg Mason Precursor Group.
Bell Atlantic has to file its application by the end of the month, aiming to win approval following a three-month review period at the symbolically charged turn of the century. Competitors and the New York Attorney General's office have said the firm is not ready for the review, but Bell Atlantic says it has been working to address various competitive issues.
Looking into the distance
Long distance is only part of the plan for the Bell companies. As long distance profit margins have dropped dramatically, the explosion of the Internet has captured the industry's attention.
The long distance voice market is growing less than 3 percent a year, undermined by constant price wars, while data and Internet revenue has grown by more than 30 percent, according to the Yankee Group.
The Bells have taken this market cue and are looking beyond offering long distance phone service to pushing long distance data for businesses and consumers. Bell Atlantic is eyeing the long-haul data market--a critical and increasingly profitable piece of the emerging telecommunications market.
"Nickel-per-minute voice is not what they're looking for," said Terry Barnich, president of the New Paradigm Resources Group, a Chicago-based telecommunications consulting firm. "They want the ability to do long distance transfer of data."
If the FCC does approve Bell Atlantic's long distance application, the firm would finally get the right to enter a market that has been particularly lucrative for firms like AT&T and MCI WorldCom. Those firms have been openly critical of the Bell's moves, wanting to protect their own positions in the market.
"Every other Bell company that files will likely be looking at this one for guidance," noted Peter Lucht, a spokesman for MCI WorldCom. "It's critical that that FCC set a high bar, because this is going to affect the future of local competition in other states."
But while arguing against Bell Atlantic's entry into the market, the company's future competitors haven't been sitting still. AT&T's cable company buys, along with deals with other high-speed Internet companies, will allow it to offer full-service packages of telephone, TV, and Internet service to homes and businesses.
MCI WorldCom and Sprint have also been moving in the same direction, buying wireless companies that can offer similar services and boosting their high-end business offerings so they can better integrate voice and data services.
End of an era
As part of Congress's landmark Telecommunications Act of 1996, lawmakers made the Bell companies a deal--if they opened up their local phone monopolies to competition, the firms could finally enter the $80 billion long distance market. These firms were barred from offering long distance services after they were split from AT&T in 1984.
Bell Atlantic has taken a different tack than some of its peers, however. It's worked closely with New York state regulators over the last year to ensure its application was complete, and has gone through extensive systems testing to ensure it has sufficiently opened up its local market to competition.