Verizon's hot call for long-distance

Challenged: Maryland's local phone company would like to become a long-distance provider, but critics say Verizon has failed to meet the legal requirements.

May 05, 2002|By Andrew Ratner | Andrew Ratner,SUN STAFF

When Augustus G. Davis and John Henry C. Watts made the first phone call in Baltimore in 1877, from their electrical shop downtown to the home of John Blattau in Highlandtown, they owned the only line and had just one choice for a connection.

Not much different from today, some would say.

The amount of phone competition in Maryland will be debated in coming months. And phone choices could change greatly in a year or so based on the outcome of that debate.

Verizon Communications Inc., the largest local phone company in the state and the nation, has asked officials for permission to begin selling long-distance service in Maryland.

First, the company needs to convince state and federal regulators that it has worked to open the market for other competitive local-exchange carriers, called CLECs in telecom-speak.

That is not likely to be an easy sell.

By various measures, Maryland is worse off than many states.

"If you look at the actual data in Maryland, the CLECs market share is lower than average," said Pat Brogan, who tracks phone competition for the Precursor Group, a Washington-based telecommunications analyst.

According to the Federal Communications Commission, Verizon's competitors have 6 percent of the local-exchange phone lines in the state, half the national average. Competition for local phone service overall has been slower to take root than for long-distance service since the forced breakup of the Bell System's phone monopoly 18 years ago.

Maryland had 10 local phone providers, including Verizon, as of last summer, the same number as Iowa, Mississippi and North Dakota.

Also, only 8 percent of ZIP codes in Maryland have at least seven local phone competitors, one-third lower than the national average.

By contrast, households in a quarter of the ZIP codes in Pennsylvania, Massachusetts and California have at least that much choice, as do half of the ZIP codes in Florida and New York, considered the most open phone markets in the country.

Verizon officials offer a much different assessment.

Federal law requires the regional Bell companies to "open" their markets, not to guarantee that competitors succeed: Whether rivals have the strategies or capital to do well is another matter, said John R. Gilbert, director of state regulatory policy and planning for Verizon in Maryland.

"Our experience has been that when we get close to competition on the long-distance carriers' turf, they get serious about starting to compete on the local level," Gilbert said.

Large long-distance carriers delay competing with the regional Bells on local phone service so that the market will appear closed and forestall the Bells from winning permission to cross into long-distance, he said.

Nevertheless, Verizon depicts a robust market in its recent application to state regulators: Phone minutes carried by competitors, the number of phone numbers granted to them and its leasing of network space to others have doubled or tripled in recent years.

Last year was also the first time in a century that the number of land-based phone lines in Maryland declined, probably because more people were using wireless phones and the Internet to communicate, Verizon said.

After consideration by state regulators and the Federal Communications Commission, which has ultimate authority in the matter, Verizon could possibly gain long-distance entry by early next year.

The tussle in telecom bewilders many consumers who recall when Chesapeake & Potomac Telephone Co., later Bell Atlantic, was the only phone choice, as certain as crabs in the Chesapeake.

Deregulation of the phone industry in the 1980s and a surge of technology investment in the 1990s changed that.

Many consumers might not realize that Verizon isn't allowed to offer long-distance service in Maryland, partly because it is allowed to do so on cell phones and also because it so heavily advertises its local phone and directory assistance services, with pitchman and actor James Earl Jones.

"Customers in their minds don't separate local and long-distance," said Rex G. Mitchell, a telecommunications analyst with BB&T Capital Markets in Richmond, Va.

The best evidence of that is cellular phones, he said: Consumers rarely shop for different carriers for local and long-distance on their cell phones, even though they can.

That's why it makes sense for Verizon to proceed deeper into long-distance even as AT&T Corp., WorldCom Inc. and other long-distance companies struggle financially.

"Once you've established a local-phone relationship, adding long-distance isn't tough. In fact, it's cheaper for the local companies to add a long-distance customer than for the long-distance company," Mitchell said.

"After they broke up the Bells, everyone said these guys are fat and lazy and monopolistic, but we haven't seen them replaced by someone who can build it for a lot less."

Six years ago, Congress reworked national telecommunications policy for the first time in 62 years with the goal of prompting competition for local phone service.

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