Ruling could loosen the Bells' grip on local phone market

BREAKING UP A MONOPOLY

October 11, 1992|By Leslie Cauley | Leslie Cauley,Staff Writer

Baltimoreans can place long-distance phone calls through several companies, but for local service, there's only one number to call: Chesapeake & Potomac Telephone Co.

That could change by the end of the decade, thanks to a recent federal ruling designed to open the local telephone market to greater competition. It's the first of what is expected to be a series of rulings aimed at breaking the Bells' grip on local phone service.

"There's no question that this is the beginning of the end of the local telephone monopoly," said Mike Balhoff, a telecommunications analyst with Legg Mason Wood Walker.

And that's good news for consumers. Limited competition in Baltimore and other cities for businesses' local phone accounts already has led to lower rates and better service.

The landmark ruling came on Sept. 17, when the Federal Communications Commission required C&P and other local phone companies to take the unprecedented step of opening their central switching facilities to competitors.

That ruling, reached after more than three years of debate and vigorous resistance by the Bells, gives tiny upstarts complete access to the Bell's coveted, ubiquitous network. That means companies don't have to build separate networks to compete with the Bells; they can just hook up to the Bells' equipment.

Other state and federal regulatory obstacles must fall before full competition can develop at the local level, but the Sept. 17 ruling will pave the way, says Bruce Kushnick, president of New Networks Institute, a telecommunications consultancy in New York.

"It's not 'Divestiture II,"' says Mr. Kushnick, referring to the monumental, court-ordered breakup of Ma Bell in 1984. "But it's an important first step."

The FCC ruling will immediately benefit the two dozen or so "bypass" telecommunications companies that have for years been angling for a piece of the local telephone market. Bypass companies provide dedicated connections to long-distance carriers, allowing business customers to circumvent the local phone company.

Bypass companies don't yet serve residential customers, mostly because they lack the ability to provide "dialtone" service. Dialtone service -- as opposed to dedicated phone lines -- allows phone customers to call anywhere.

That could change, though. The FCC is looking at the possibility of allowing bypass companies into that market and is expected to issue a ruling on the matter next year.

Bypass companies have been nibbling at the heels of the billion-dollar Bells for several years. But hampered by the inability to interconnect with the Bells, competitors have been forced to build their own networks.

That's a long-term, expensive proposition -- and one that few could afford.

According to Connecticut Research, a Glastonbury, Conn.-based consultancy, the top 36 bypass companies in the United States will generate about $260 million in revenue this year. That's a 90 percent increase over the previous year, but it's still anemic compared to the telephone revenues generated by Bell Atlantic Corp. alone -- about $9 billion -- last year.

Robert Tomlinson, president of Connecticut Research, predicts the bypass market will break the $1 billion mark in 1995, when the business market should be fully competitive at the local level.

No one expects the recent FCC ruling to immediately alter the David-and-Goliath scenario that the bypass companies have faced since their inception. But it should help matters considerably over the long term, says Royce Holland, president and chief executive officer of Metropolitan Fiber Systems Inc., a bypass company based in Oakbrook Terrace, Ill.

"The Bells . . . have been able to delay growth of competition for some time," said Mr. Royce, noting that the Sept. 17 ruling was the culmination of a request made three years ago by MFS. "The FCC order . . . establishes a beachhead for more competition to develop."

MFS already offers service in 14 major markets, including Baltimore. The company entered the local market in 1989, one year after it was founded, giving C&P its first real taste of local competition.

In short order, MFS built in downtown Baltimore a fiber optic-loop that directly competed with C&P's older, antiquated copper lines.

Lured by the promise of faster, better service and cheaper prices, a number of C&P's largest customers, including Maryland Casualty, First National Bank of Maryland and the Social Security Administration, jumped ship.

MFS claims its prices average 15 percent to 40 percent below C&P's rates, depending on the location of the customer and the volume of services being purchased.

Today, about 150 Baltimore companies that once gave all their local voice and data traffic to C&P now divide their traffic -- and dollars -- between the two.

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