Regulatory News – Bell Companies Ride High on Competitive Surf

Posted: 06/1999

Bell Companies Ride High on Competitive Surf
By Kim Sunderland

Whether it’s an application for the provision of in-region long distance service or a
petition to merge with another incumbent local exchange carrier (ILEC), the Bell companies
are moving closer to obtaining approval from the Federal Communications Commission (FCC)
on both counts. It’s called getting your ducks in a row. But that isn’t to say that
problems don’t still exist.

San Antonio-based SBC Communications Inc. and Hoffman Estates, Ill.-based Ameritech
Corp. are talking with the FCC about placing certain conditions on their planned merger.
In an unusual request this spring, FCC Chairman William E. Kennard asked the CEOs of both
Bells to meet with federal regulators to address "serious concerns" about the
estimated $61 billion merger’s supposed benefit to consumers. The deal so far has received
approval from the U.S. Department of Justice (DoJ), as well as state commissions in Ohio
and Illinois. The FCC is the last hurdle the companies must clear.

While Chairman Kennard and his staff regard public interest as a high priority at the
FCC, "the question is how far should they go?" Atlanta-based telecom industry
analyst Jeffrey Kagan says. "The FCC basically wants to be convinced the companies
will do what they promised. The question is how far will they take their demands since so
many mergers have already occurred and more are on the table."

The Senate Judiciary Committee’s antitrust subcommittee has before it S. 467, the
Antitrust Merger Review Act, which would enact a more efficient merger review process, as
well as certain deadline requirements.

The Competitive Telecommunications Association (CompTel), Washington, which represents
competitive telecom carriers and their suppliers, supports this legislation being
considered by the Senate. But the national trade group wants more time allowed to the FCC
to examine the potential competitive impact of mergers that involve the ILECs.
Specifically, CompTel suggests that the proposed bill be amended to include a mechanism
whereby the FCC, on a majority vote, could extend the bill’s 180-day time limit on merger
reviews by 90 days.

Citing the proposed merger of Philadelphia-based Bell Atlantic Corp. and Irving,
Texas-based GTE Corp., CompTel President H. Russell Frisby Jr. says such mergers among
ILECs pose serious, complex issues for the FCC to resolve through its public interest
analysis. He adds that such mergers also could impede or eliminate competition in the
markets for long distance, local exchange service, exchange access and Internet access
services.

Regarding the proposed union of Bell Atlantic and GTE, the most recent state approval
came from the New York Public Service Commission (PSC) in mid-March, bringing to 24 the
total number of state commissions that either have approved the merger or asserted no
jurisdiction over it.

Until a decision is made regarding its union with GTE, one source says Bell Atlantic
probably will wait to file its application with the FCC to provide in-region long distance
service in New York. And the FCC, sources say, possibly may rule on these mergers, as well
as Bell Atlantic’s long distance application, by mid- to late summer.

Speaking of Bell Atlantic’s long distance application, the company in late April
claimed it has fully opened its local phone market to competition and should be allowed to
offer long distance service in the state of New York. In a long-awaited filing with the
New York PSC, Bell Atlantic executives say the company has satisfied the 14-point
competitive checklist of the Telecommunications Act of 1996.

The Bell company also plans to ask the FCC for permission to serve the $8 billion New
York long distance market by as early as this month, according to Randy Milch, Bell
Atlantic’s associate general counsel. When approved by the federal agency, Bell Atlantic
then plans to begin offering in-region long distance service within 90 days.

In its 118-page filing, Bell Atlantic says more than 400 issues have been resolved to
satisfy the checklist and to meet the demands of companies wishing to compete in the local
telephone market in New York.

The New York long distance filing followed the April 7 release of initial results from
a seven-month test of Bell Atlantic’s operations support systems (OSS) in New York. The
test, conducted by independent auditing firm KPMG Peat Marwick LLP under the direction of
the New York PSC, examined Bell Atlantic’s processes for interaction with competitors,
service switchovers and other customer-related issues. Bell Atlantic claims that the KPMG
evaluation shows that it has met about "90 percent of approximately 450 test
criteria, including when the systems were stressed to maximum capacity."

Industry skeptics aren’t convinced. The Association for Local Telecommunications
Services (ALTS), which represents facilities-based local exchange competitors, says Bell
Atlantic continues to delay competition in New York’s local exchange market. ALTS says
Bell Atlantic continues to:

• Keep competitors out of the advanced data market;
• Drop competitors’ customers from dial-in 411 directory databases;
• Cut off phone service before a competitor’s service begins;
• Deny competitors access to central offices (COs); and
• Miss customer deadlines for service.

Calling Bell Atlantic’s application "ludicrous" and "premature,"
AT&T Corp.’s Michael J. Morrissey, vice president of law and government affairs for
New York and New England, says the Bell hasn’t met the 14-point checklist yet. "Based
on the KMPG report … Bell Atlantic is nowhere near finishing its OSS test,"
Morrissey says. "There are now some 53 exception reports that need to be addressed
and fixed that include important functionality like preordering, ordering and
billing."

Nonetheless, that hasn’t stopped AT&T from negotiating a deal whereby the long
distance giant leases Bell Atlantic’s lines to offer local phone service by the end of the
year. Morrissey says it will take the company through 2000 to outfit all its cable lines
for two-way phone service, a process that requires extensive upgrades that cost big bucks.
This is an about-face for AT&T, which previously complained about outlandish Bell
leasing prices. What’s different in this case now, according to Morrissey, is that Bell
Atlantic is making rent cheap for its local phone network. And that’s because Bell
Atlantic wants to provide long distance service in New York.

Bell Atlantic’s James G. Cullen, president and chief operating officer, says that the
data accompanying its New York filing "tells a story of strong overall
performance." He also warned that "many of our competitors will press the PSC to
ignore these excellent results, focusing instead on a few issues we’re still working on.
We think the commission will recognize that … perfection is elusive."

"If not in New York now," Milch concurs, "then when? If not in New York,
where?"

Texas is one strong possibility. At press time, SBC actually had moved closer to its
goal of providing long distance telephone service to its customers in the state. The Texas
Public Utility Commission (PUC) ruled that SBC has met the requirements of the Telecom Act
and has fully opened its local market to competition. The PUC, however, is holding back on
final support of SBC’s in-region long distance application until the Bell’s OSS tests are
finalized.

"Our long distance application still has a way to go," says James Shelley,
SBC’s regulatory president, "but we’re encouraged because we have made tremendous
progress and we’re on the right track."