Seeking Better Connections PHONE MERGER

August 22, 1993|By GARLAND L. THOMPSON

Ask a local telephone company about the recently announced,$12.6 billion AT&T-McCaw Cellular merger and the biggest bad word you'll hear is "bypass."

Owning McCaw, AT&T could connect its cellular customers directly to the long-distance lines, bypassing the wired network of a local phone company altogether for calls across the nation.

This is technically easier, less noise-prone and more efficient than the present setup. Today, a cellular phone user calling a mobile phone in another state connects to the phone network through local phone company circuits, which switch the call to a long-distance carrier -- typically AT&T, which has 60 percent of the business, MCI or Sprint -- which reaches a local carrier on the other end, which switches the call to the receiving cellular phone. That can involve as many as five different phone companies in the call.

Phone users may not care how many companies are involved in their calls, but it makes a huge difference in the billing. If the merger gets past regulatory and Justice Department antitrust hurdles, AT&T's McCaw connection will let it eliminate the "middlemen" in local phone networks, bypassing the per-minute charges exacted by the seven regional "Baby Bell" companies to reach local customers.

USA Today says Bell Atlantic, parent of local C&P, and the other regional carriers created out of the 1984 breakup of AT&T draw 25 percent of their annual revenues from access fees charged to long-distance carriers.

And McCaw, the largest cellular carrier, already serves areas with 35 percent of the nation's population. AT&T, which paid $14 billion in access charges to local telephone companies last year alone, could make significant savings.

But what about the people, as Maryland Gov. William Donald Schaefer might say? What about the people?

After all, that 1984 breakup of AT&T's telephone monopoly came about because other businesses wanted bigger pieces of the phone-revenue pie. Those companies -- equipment suppliers making everything from private business exchange equipment to pocket phones, long-distance carriers like MCI and Sprint, and service providers such as pager companies and voice-mail networks -- may point proudly to the cornucopia of new services and abilities they've given to local customers.

But the reality for individual phone customers is that individual bills went up. And the confusion of trying to find the right number for companies and individual customers visited on phone users during the 1980s amid the turmoil of rapid switches in service and options is still a painful memory to many.

And those who regularly use cellular phones to make or receive calls as they move around the country also know that today's fragmented, many-hands-on mobile telephone business makes it very difficult to keep up. You have to know the "roamer" numbers for calls made outside your company's service area, and your callers have to know special access numbers to reach you -- numbers which change as you go from one out-of-state service area to another.

If the AT&T merger with McCaw, which has been driving to create seamless mobile phone connections across the country, means less of that confusion, so what if it bypasses local phone circuits and access charges?

The local carriers (who say they're developing their own seamless connections, in partnership with other regional carriers) say what's wrong is that AT&T-McCaw becomes a monstrous new competitor in their meat-and-potatoes local service business, freed from the restrictions of the federal court order that broke up AT&T, while the local phone companies are still legally kept out of the long-distance business.

"What I want is not to keep AT&T or anybody else out," says William Ferguson, chairman and CEO of New York-based Nynex Corp. "What I want is to open up the marketplace to free and open competition," he told the Wall Street Journal. With today's technology, with plenty of satellite phone circuit capacity multiplying and with the rapid growth of "teleports" and fiber-optic connections, there is no technical reason a regional carrier such as Bell Atlantic or NyNex could not provide long-distance service.

But despite all the talk, the grand bypass capabilities of cellular phones and long-distance carriers are still mostly in the future. Here's an example: Los Angeles, the nation's biggest city and the biggest cellular market, has a theoretical limit of 700,000 customers. That's due to the channel capacity of today's cellular systems. New digital technology could triple this, or even create almost 20 times the channel capacity, should telephone companies standardize on the heralded code-division multiple access system, but that's several millions of dollars (nationally, billions of dollars) and several years down the road. Right now, the standard system isn't big enough.

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