SPURRING TELECOMMUNICATIONS COMPETITION : Baby Bells Likely to Win the Race to Develop Multimedia

To hear people talk, there will soon be more competition in the telephone business than in the World Cup soccer tournament coming to America next summer. In a major speech, Vice President Gore called Tuesday for open competition among telephone, cable and computer companies to build an information superhighway.

“At some time in the next decades . . . we won’t talk about cable or telephones or cellular or wireless because there will be free and open competition between everyone who provides and delivers information,” Gore said.

And the Council on Competitiveness, a blue-ribbon advisory panel of leaders from business, labor and academia, called last week for local telephone companies to be allowed to compete in long-distance services and for newcomers, including electric power companies, to enter local telephone service. The idea is that cross fertilization will breed technological development.

That’s a remarkable shift in national attitudes. The old belief that regulation makes for low telephone rates is giving way to a new understanding that competition not only lowers rates but can deliver technology too.

And that has implications for telephone customers, employees and investors--although the likely competitive winners may surprise you.

Much of the talk so far about the coming convergence of telephones, television and computers--multimedia, in a word--has seen cable outfits, entertainment firms and the long-distance carriers--AT&T;, MCI and Sprint--invading and dominating the local phone companies’ domain.

But keep in mind that all business is basically a search for customers, and the regional Bell operating companies, or RBOCs-- Ameritech, Bell Atlantic, BellSouth, Nynex, Pacific Telesis, Southwestern Bell and US West--have more customers than anybody else.

And more money too. “Their combined revenues are more than $80 billion, while revenues of the entire cable industry are only about $22 billion,” notes Peter Bernstein of Probe Research, a New Jersey-based consulting firm.

That’s why Bell Atlantic is buying the cable giant Tele-Communications Inc. rather than the other way around; that’s why Time Warner needs US West’s investment, not vice versa.

As change comes, the RBOCs might be sitting in the catbird seat--meaning singing from a high branch of the tree--as the late sportscaster Red Barber used to say.

Legislation for change is already pending. A bill sponsored by Rep. Jack Brooks (D-Tex.) and Rep. John Dingell (D-Mich.) would allow local phone companies to offer long-distance service and own manufacturing operations. Another bill by Rep. Edward Markey (D-Mass.) and Rep. Jack Fields (R-Tex.) would allow local phone companies to own video programming.

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Gore said he will outline the Administration’s legislative package in more detail on Jan. 11 in a speech in Los Angeles.

This eagerness for change is in contrast to a decade ago, when on Jan. 1, 1984, the old American Telephone & Telegraph Co. was formally broken up under terms that opened long-distance service to competition but protected local service. The regional Bell companies remained in a regulated phone business that became more lucrative because they could now charge long-distance carriers, including their former parent AT&T;, for access to their local customers.

It was a comfortable business. While AT&T; went through years of difficulty in adapting to a competitive environment, the regional Bells earned profits at extraordinary rates in a regulated business.

But protection breeds sloth. In a time of historic change, your telephone hasn’t changed much at all. New services have been few and expensive. The Bell companies didn’t have much ambition, nor were they often encouraged by state regulatory bodies. The California Public Utilities Commission even disallowed Pacific Bell’s request to upgrade its switches, on grounds that using dated equipment would keep phone bills low.

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Yet local phone rates are not low, nor even competitive. That’s why entrepreneurial telecommunications companies have sprung up--Culver City’s IDB Communications and many others--to give business customers lower rates for linking their phone systems to long-distance carriers.

The local Bells’ excuse is that they have to maintain higher rates in order to subsidize service for everyone, including the poor. But the new thinking is that rates should be brought down by competition and special funds set up, with contributions from all phone service providers, to finance a subsidy for the poor.

That way, it is thought, we’ll get lower rates and technological development too--and a running start on gigantic world markets in the new century. “If America is to develop a world class information superhighway, we must promote healthy competition at home,” Gore said.

The new attitude is already spurring investment. Pacific Bell has announced a $16-billion capital program for fiber-optic trunk lines and coaxial cables into homes to bring video services to local phone customers.

The upshot is that the regional Bell companies could lead the multimedia revolution that is coming sooner than we think. “In the next two to three years,” suggests William Davidson of Mesa Research, a Redondo Beach telecommunications consulting firm, “we could see joint ventures between a phone company’s transmission lines and a newspaper’s information capability in which real estate and help-wanted ads would be interactive on computer video-phones.”

And sooner than that, he says, “we may be playing ‘Jeopardy’ interactively with millions of other contestants.”

Don’t laugh. If you recall that television, which transformed the world, began with wrestling matches and Milton Berle, you know multimedia is going to be serious business. Let the games begin.