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How To Vault The Final Hurdle To Telecom Reform

Information Processing: COMMENTARY


Back in January, 1985, Metro-Link Telecom Inc. started offering phone service between Houston and nearby Galveston, Tex., by leasing lines from SBC Communications Inc., the regional Bell operating company. After two years, the Texas City upstart had wrested 200 big corporate customers from SBC. Then the Baby Bell launched a counterattack. According to an antitrust suit that Metro-Link filed, SBC tried to squash its smaller rival by removing Metro-Link numbers from its phone directories and refusing to assign it any new numbers. SBC officials deny they tried to kill off the competition, but in July, 1993, Metro-Link was awarded $5.7 million in damages, which SBC is appealing. "They will stop at nothing to stop competition," says Daniel A. Jones, a Metro-Link co-owner.

Metro-Link's experience points up the thorniest issue facing Congress as it attempts to rewrite the laws that regulate the sprawling U.S. telecommunications industry: how to dismantle the local-phone monopolies run by the Baby Bells, GTE Corp., and 1,300 smaller players across the nation--and quickly introduce the free-for-all in local calling that has benefited long-distance consumers for a decade.

BEDEVILED. Granted, virtually all interested parties are in agreement on the endpoint of new legislation. In return for freedom to enter new businesses such as long distance and cable TV, local-phone companies must open their markets to competition. The devil is in the transition rules that the different parties want put in place to ensure that the local phone giants do indeed open their markets.

Republican lawmakers have proposed a Bell-friendly "date-certain" measure. It would say, in effect, that as of a certain date the Baby Bells can enter cable, long distance, or any other business, whether or not competition exists in their local operating regions. Democrats, more closely allied with long-distance carriers, favor some form of test to determine whether a Baby Bell's local market is competitive before it can jump into long distance.

There are big drawbacks to both approaches. Senate Republicans, led by Larry Pressler of South Dakota, are pushing a proposal to introduce legislation that lets the Bells into long distance after three years. The GOP figures that would give cable companies and long-distance carriers enough time to penetrate local calling. Even before that, the Bells could enter the cable-TV market to help break up that monopoly.

The trouble is, the Baby Bells would still have every incentive to continue blocking or delaying competition. While the Republican measure includes penalties of up to $500 million for delaying tactics, experts say the billions of dollars in revenues from preserving the local monopolies would more than offset the fines. The date-certain approach is "very poor public policy," says John W. Mayo, an economics professor at the University of Tennessee.

The Democratic alternative--a rerun of last year's Senate bill--would be no better. It calls on the Justice Dept. to decide whether there is a "substantial possibility" that the Bells could impede competition in local markets and requires the Federal Communications Commission to decide whether freeing the Bells would be in the public interest. But this subjective approach confers too much power on regulators. Worse, it could spawn litigation over the definition of "substantial" that might take years to settle, further postponing the benefits of competition.

EQUAL CHANCE. The smartest strategy is contained in a bill to be introduced shortly by Jack Fields (R-Tex.), chairman of the House telecommunications & finance subcommittee. His plan lays out objective criteria for determining whether a market is open. For example, customers must be able to keep their same phone numbers, with no extra digits added, no matter who their local carrier is. Interconnections with the existing network must be offered to new entrants at competitive rates. And

local-phone companies must "unbundle" services they sell so that rivals can buy just what they need--leased lines, for instance--and not be made to buy things they don't want. Once state regulators say the competitive "checklist" is complete, the FCC would give the Bells the green light.

This proposal would provide a sound framework for full competition in local-phone service. It doesn't assure that anyone will take on the Bells successfully. But the government can't guarantee how market forces will play out--only that all comers will have an equal chance. Fields is proposing fair rules for the race. It's time to let it begin.By Mark Lewyn

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