Phone lines, cable lines, battle lines

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Phone lines, cable lines, battle lines
By Leon Worden
Friday, August 20, 1999

ill MediaOne be forced to let its competitors use the cables it paid for and installed, so they can take some of MediaOne's customers away?
    Government can't do that, right?
    It would be sort of like saying, “OK, Pacific Bell, you've paid for and installed all these phone lines, now you have to let rival phone companies use them so they can take your customers away.”
    It may sound facetious, but it isn't. It's exactly what regulators are making Pacific Bell do, as a condition of letting it enter the long distance market.
    The Telecommunications Act of 1996 let consumers choose their local telephone carrier, just like they choose their long distance carrier. In return, the act laid the groundwork for Pacific Bell to provide long distance service, following the 1980s breakup of the Bell Telephone monopoly into the Baby Bells (for local phone service) and AT&T (for long distance). But first, Pacific Bell must prove it is facilitating competition for local phone service.
    Today, 450 Pacific Bell employees in Anaheim and 350 in San Francisco process 50,000 orders a month— not from new customers signing up with Pacific Bell, but from rival carriers switching Pacific Bell customers away.
    Deep in a Pacific Bell nerve center in downtown Los Angeles, chicken-wire cages are jammed with equipment used to re-route phone calls to rival companies' systems. The cages are like little embassies, with 24/7 access for the workers from the “foreign” phone companies that own the equipment.
    There were about 20 cages in Pacific Bell's basement by the end of 1998. By the end of 1999, 109 competing phone companies will operate their own equipment at the Pacific Bell complex.
    With all this, Pacific Bell hopes regulators will let it start providing long distance service early next year, because local phone service alone is a money loser.
    As one of California's two “incumbent” local service providers (the other being GTE), Pacific Bell must offer local phone service when no company, including Pacific Bell, wants to. Only half of all local phone accounts are profitable— business customers and “premium” residential customers who have multiple phone lines, cell phones and Internet access.
    “Our competitors are very careful only to go after business (accounts),” said Steve Weingarten, Pacific Bell's press officer.
    Another Pacific Bell executive explained, “The real money is in bundling services. You don't make it on local service.”
    “Bundling” is what Pacific Bell plans to do with its high-bandwidth DSL (digital subscriber line), which will enable it to package high-speed Internet access (dozens of times faster than non-DSL) with its existing services— local phone, wireless, paging, messaging and, if regulators agree, long distance. Satellite television, through a new DirecTV-Pacific Bell alliance, is on the way, too.
    “(Companies) hope that by offering a basket of services they will lock in customers,” said Dan Schiller, professor of communications at the University of California, San Diego.
    “Bundling” is also what MediaOne and Time Warner's upgrades are all about— the ones that have drawn fire from customers who have come home to find “gill rocks” in their yards.
    Once the upgrades are complete, the cable companies will be able to offer improved television service, high-speed Internet access (at speeds comparable to DSL) and, eventually, telephone service, over a single cable line.
    Running the cable show will be AT&T, which will be the nation's biggest cable company once its acquisition of MediaOne is complete. Critics— rival phone companies such as Pacific Bell and GTE, and rival Internet service providers such as America Online and MindSpring— say what AT&T is doing is tantamount to rebuilding the Bell Telephone monopoly— and skirting the Telecommunications Act by providing various telecom services through cable lines instead of phone lines. (Consumer groups asked regulators Tuesday to block the MediaOne acquisition on antitrust grounds.)
    City officials in Portland, Ore., to prevent monopolization, told AT&T it must let rival Internet service providers use its cable lines— much like Pacific Bell must allow other local carriers to use its phone lines.
    In June a federal judge upheld Portland's “open access” policy. AT&T is appealing. If the appellate court stands by the ruling, cities will have regulatory authority they never had before, and open vs. closed access will be debated in city council chambers across the nation. (The FCC warned Monday of “regulatory disparity” if cities start deciding on access. The FCC said it hasn't yet had the last word on regulating cable modem service.)
    Santa Clarita is gearing up for the debate. MediaOne has applied for a name change on its cable television franchise agreement to reflect its new ownership by AT&T, and last week the city said it will use the opportunity to decide between open and closed access.
    So again the question. Will MediaOne be forced to let its competitors use the cables it paid for and installed, so they can take some of MediaOne's customers away? Government can't do that... or can it?

Leon Worden is The Signal's business editor.