Why Phone Deregulation Is Good for You
Even if it doesn’t seem broke, fix it anyway because you can’t stand pat when technology is changing rapidly. That’s the thought to keep in mind in the next year or so as local telephone service encounters all the trials and joys of competition and deregulation.
Revolutions can begin without fanfare. The Federal Communications Commission a week ago said it may allow competitors access to the local phone networks of the regional Bell operating companies--and those of other local providers such as General Telephone.
The local Bell companies are those that were left with a publicly regulated local monopoly when American Telephone & Telegraph was broken up and long-distance service deregulated in 1984--Ameritech, Bell Atlantic, BellSouth, Nynex, Pacific Telesis, Southwestern Bell and U S West.
The immediate beneficiaries of the FCC’s proposed ruling are companies such as Teleport Communications of New York and Metropolitan Fiber Systems of Oak Brook, Ill. Both offer a greater variety of telecommunications services to business at a somewhat lower price than the local telephone companies can, even though the local Bells are giant outfits ranging from $10 billion to $14 billion in annual revenue.
But Teleport and others are able to gain corporate customers because Bell charges to business are higher than they need to be--often twice as high--in order to subsidize residential service. That means, in turn, that as the Bell companies lower corporate phone bills to compete with the newcomers, your local residential bill may go up.
Oh no, you say, spare us more deregulation. Many people have never forgiven the Justice Department for breaking up the old AT&T.; They think that the phone company was doing a swell job. But it wasn’t. It was falling behind technologically; competitors were taking its business customers by offering faster, more sophisticated services. Since deregulation, long-distance rates have fallen, the market has expanded greatly and AT&T;, fired by competition, has become a far better phone company.
Similarly, if the local phone companies were left in monopoly, they would become the telephonic equivalent of the Post Office, the message sender you use only when time or reliability doesn’t matter all that much.
But now the so-called Baby Bells will join in the competitive free-for-all that will see a multitude of companies getting into local phone service. Newspaper companies, linking classified ads to 900 phone numbers will be in it; cable-television firms offering new services to the home from their curbside terminals will be in it.
The Bells, which have been restricted from manufacturing phone equipment or competing for long-distance calls or offering information services on the grounds they have a “bottleneck” monopoly, will be able to say to regulators or to Congress: “Look, competitors galore are jumping into our business. Let us loose.”
These are strong companies in technology and capital. Since 1984, they have been investing in cellular telephone services in the United States and in cable TV and basic phone service overseas. The leading cable-TV owners in Britain, for example, are Nynex, Pacific Telesis, Southwestern Bell and U S West.
But they will need all their strength and their wits for the competition here at home. The outlook for change in the next five years is astounding. Personal communications networks will allow people, at moderate costs, to carry pocket phones and to send and receive computer data from anywhere. Now you talk to answering machines and leave messages. But with the coming of voice-activated response, you’ll be able to dial a restaurant and have the menu sent to your house--over a low-priced fax in the home.
Opportunity will be everywhere. If local companies can think intelligently, they can sell customers more local services and so won’t have to raise basic residential charges, says Berge Ayvazian, an analyst at Yankee Group, a research firm.
If they don’t think intelligently, someone else will. Chairman John Malone of Tele-Communications Inc., which despite its name is solely a cable-TV firm, says he would like to offer telephone service, too.
What it all means is that the Baby Bells will be fired in the crucible of competition. “Some will emerge as successful communications companies, but others may fall by the wayside and become takeover bait,” says Peter Bernstein, senior analyst at Probe Research, a New Jersey firm that has done a major study of the coming competition.
Investors will be attentive because the Bells, with at least 1 million shareholders each, are among the most widely owned companies in America. In the near term, with the upheaval of competition, local telephone stocks are likely to be under pressure, says analyst James McCabe, of Nomura Securities. The Baby Bells as a group are down 10% so far this year.
But longer term, the successful companies will attain far greater values. Trying to pick eventual winners, the consensus of analysts today is that Ameritech, Nynex and Pacific Telesis are best prepared for the coming struggle, with Bell Atlantic and BellSouth not far behind. Southwestern Bell and U S West attract less enthusiastic comment.
But for all the local phone companies, the proper perspective is that competition and deregulation will give them an opportunity to invest in the business they know best in the U.S. markets they know best. The lesson for everybody, phone customers as well as companies, is that when barriers fall, opportunities open up.
