AT&T retreats in residential phone market

New long-distance accounts no longer sought

Move reflects technology changes

Verizon unveils service over the Internet

July 23, 2004|By Tricia Bishop | Tricia Bishop,SUN STAFF

Fallout from the breakup of the nation's phone monopoly a generation ago was fully evident yesterday: AT&T Corp., the phone giant that Alexander Graham Bell founded, announced it is no longer seeking new residential long-distance customers.

In another development, local phone giant Verizon Corp. said it is launching phone service via the Internet in about half the country, including Maryland.

While AT&T Corp. has been leaving some phone segments, its retreat from consumer long-distance to concentrate on business customers was viewed as significant, and a potent symbol of how the phone industry has been turned upside down.

Some experts blamed a recent federal appellate court decision that overruled the Federal Communications Commission. It potentially harmed AT&T and other competitors, they said, because it meant they could no longer lease lines owned by the regional Bells such as Verizon at cheap rates.

But others said AT&T's problems merely mirror all the competition weighing on traditional phone service - from wireless phones now, and increasingly from cable and Internet telephone service later.

FCC "rules are going to change radically. That's why we're taking this action," said David W. Dorman, AT&T's chairman and chief executive officer.

Dorman said his company has fared poorly in the past few years as customers have opted for lower-cost competitors and services outside traditional offerings. According to an earnings report released yesterday, AT&T's profit for April through June was down to $108 million, from $536 million for the same period in 2003.

Verizon announced its entry into so-called Voice over Internet protocol phone service, or VoIP. It will offer Internet telephone service in Maryland, 32 other states and Washington, D.C., for about $40 per month.

The addition will help the company "win in the marketplace against strong competition of cable TV companies," said Robert E. Ingalls Jr., president of Verizon's retail markets group.

Downplayed Internet

Verizon initially downplayed the Internet for consumer phone business, but could no longer ignore it as others gained ground in the technology, including Vonage of New Jersey and Time Warner Cable.

AT&T already offers Internet phone service in Maryland, 31 other states and Washington, D.C.

Verizon conceded that its new Internet business was likely to eat into more traditional service, including its own.

"That's just part of the reality of the world we're in," Ingalls said.

Verizon also likely wants to head off a challenge from Comcast Corp., the cable television giant that has begun offering phone service across its cable system in some markets. Comcast became a larger threat to Verizon by buying AT&T's cable system two years ago.

Since 1996, when Congress passed the major telecommunications law designed to spur competition, cable companies have invested $85 billion in voice and data services that traditionally belonged to phone companies, according to the National Cable and Telecommunications Association in Washington.

The market's reaction appeared relatively mild: AT&T stock closed down 8 cents to $14.24 yesterday. Verizon's stock closed up 48 cents to $34.61.

AT&T came into being shortly after Alexander Graham Bell invented the telephone in 1876. Bell patented his invention and founded the American Bell Company, AT&T's predecessor.

In 1885, the subsidiary American Telephone and Telegraph Company was created and given the task of developing a nationwide long-distance network. Fourteen years later, AT&T had taken over its parent company.

The telephone giant was dismantled in 1984 in an effort to break its monopoly. Seven regional Bell companies - two of which later combined to become Verizon - were created along with a new AT&T that retained its long distance roots.

"Psychologically it's a huge decision in that AT&T is exiting a business it's been associated with for the last 100 years," said Rick R. Black, a telecommunications analyst with Blaylock & Partners in New York. "Basically they've ceded the local and long distance business" to the regional Bell companies.

May hurt MCI

Black said the move could have negative implications for MCI Inc. as well, "because if AT&T, which had a better operating structure, couldn't compete, what makes you think MCI could?"

A spokeswoman for MCI said the company had to "evaluate and analyze the possible impact of recent market changes" and was not ready to make any concessions.

AT&T and its supporters said the company's move to stop marketing long-distance service to residential customers was a direct result of a U.S. District Court ruling in March. That ruling rejected an FCC order that held down the rates the big four regional "Bell" companies could charge competitors like AT&T and MCI who wanted to lease their equipment.

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.