The Baby Bells Are Loose Expect More Chaos

MARK N. COOPER

December 24, 1991|By MARK N. COOPER

WASHINGTON. — Washington -- When the government agreed to break up the Bell telephone monopoly almost a decade ago, the largest corporate reorganization in U.S. history was certain to create confusion. One would hope that after eight years the new industry structure would be settled on a clear, positive course. Unfortunately, the end of the turmoil is not in sight and the worst may be yet to come.

On the positive side, the once-exclusive domain of Ma Bell was shaken by competitive forces that produced new services and lower prices for some people and businesses. The telephone-equipment market and the fledgling information service industry are real bright spots.

On the negative side, the break-up created seven regional Bell Operating Companies with a continuing monopoly on local service and the freedom to enter unregulated businesses. Unfortunately, as a recent report by the Consumer Federation of America shows, the ''Baby Bells'' have used their leverage to jack up local telephone rates, increase profits and undermine competition wherever it touches the local monopoly network.

A careful review of the record produces an alarming finding: the 1980s were the first decade since the turn of the century in which local rates have gone up in real terms. Behind these rate increases are overcharges on local bills of about $30 billion.

* Worse still, this money has not been used to improve service. It has been funneled into unregulated activities like real estate, foreign currency deals and the purchase of foreign telephone companies.

* Excessive local telephone rates are only part of the story. As the Bell companies moved into unregulated activities, their anti-competitive and anti-consumer behavior expanded sharply.

* The Baby Bells can make ratepayers foot the bill for unnecessary equipment and services. In Florida, Southern Bell used this ''gold plating'' to justify a speculative $100-million investment in fiber optic transmission lines.

* The Bells can load the cost of competitive services onto those of local phone service. NYNEX drained telephone revenues of morer than $100 million into an unregulated affiliate, then sought a rate hike to cover the shortfall.

* The Bells can restrict the supply of services, exploit consumer ignorance and engage in deceptive practices. Bell of Pennsylvania paid $42 million to settle charges that it had deceptively sold customers more ''intelligent network'' services than needed or desired.

* The Bells can charge costs to the wrong services and mis-allocate profits. Regulators in 19 states accused the Bells of allocating Yellow Page advertising profits of hundreds of millions of dollars to out-of-state subsidiaries rather than using them to keep phone rates down.

* The Bells can dictate whether, how and when competitors can deliver services over the local network. In Georgia, Southern Bell made it so difficult and expensive for competitors to offer voice messaging services that regulators had to order Bell to virtually cease all its own marketing.

* The Bells can use their captive rate bases to target consumers for new services. When consumers asked about competitive services, Pacific Bell referred them to its affiliates and kept them away from independent providers.

* The Bells also can use their clout and unique position to influence politicians and regulators. Michigan Bell recently used information from customer billing records to identify subscribers as targets of their lobbying. When they ''telemarketed'' these customers to support their position, they offered direct, free calls to legislators.

The end of abuse is nowhere in sight. Past problems occurred in spite of major restrictions on the businesses the Bells were allowed to go into, but even those restrictions are being lifted. The federal courts have already opened the door for them to enter the information services business and the Congress is considering letting them manufacture the equipment used in their networks.

As a result, the opportunity to abuse ratepayers, competitors and consumers is about to expand dramatically and the Bells have shown every inclination to exploit the situation. Only the Congress can prevent the Bell companies from extending their anti-consumer, anti-competitive practices into the information services market.

After $30 billion and dozens of cases of fraudulent marketing, blatant cross-subsidy and attacks on competition, enough is enough. The Congress must protect consumers from further rate hikes and expanding telephone monopolies.

Mark N. Cooper is director of research at the Consumer Federation of America, the nation's largest consumer-advocacy group.

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