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Call Ameritech A Baby Bellwether

Information Processing: TELECOMMUNICATIONS


In all the wrangling over how to restructure and deregulate the U.S. telecommunications industry, Ameritech CEO Richard C. Notebaert has kept his eye on a simple goal: to get into the long-distance business as soon as possible. Sure, like any Baby Bell executive, he's preparing to jump into cable TV and electronic commerce. But nothing can give the enormous and nearly instantaneous boost that long distance can.

It's simple: Ameritech Corp.'s local business is growing at 2.7% a year, and long-distance calling in its region--Illinois, Michigan, Indiana, Ohio, and Wisconsin--is growing at around a 10% rate. And, 57% of the long-distance calls originating in Ameritech's area finish there.

"ACTUAL COMPETITION." So when the Justice Dept. offered a shortcut into the long-distance business, Notebaert jumped. After months of haggling with potential rivals and federal regulators, on Apr. 3 Ameritech agreed to a Justice proposal that will permit the company to offer long-distance services in Chicago and Grand Rapids provided Ameritech opens those markets to all comers. Says Notebaert: "This is a monumental step forward."

To be less hyperbolic, it's a start. But it puts Ameritech ahead of the other Bells, which await federal legislation to let them into the long-distance business. Just a day after Ameritech inked the Justice deal, the prospects for passing a telecom bill dimmed when Senate Republicans postponed action because of a squabble with the White House. Now, say Washington insiders, the chance of getting a bill in 1995 are less than 50-50.

That could give Ameritech a lead of 18 months or more. To get it, however, the company did have to compromise. Notebaert settled for a limited two-city trial and backed off his original proposal, offered to the Justice Dept. and the Federal Communications Commission in 1993, which called for simultaneously opening local and long-distance markets. Ameritech must prove that there is "actual competition" in its local markets before the trial can commence next year.

The deal also required concessions to carriers such as AT&T and MFS Communications Co., a bypass company that connects Chicago businesses directly to long distance networks. Sources close to the negotiations say these rivals convinced Justice that simultaneously opening long-distance and local markets would give Ameritech an unfair advantage in its home markets. Even under the final agreement, says Ameritech Executive Vice-President Thomas P. Hester, the market openings "will be close enough to be simultaneous."

Indeed, the Justice-Ameritech agreement could be a blueprint for competition nationwide--resolving a host of issues that have stymied Congress. Ameritech, for instance, has agreed to unbundle its local network and sell pieces, like switches and cables, to rivals who want to start local service. Ameritech has also agreed to interconnect its system with those of its competitors, so customers will get seamless service no matter which local company they choose. Just two months ago, it took an order by the Illinois Commerce Commission to force Ameritech to make such connections for MFS in Chicago. Says MFS President Royce J. Holland: "This deal meets all of our tests."

BRAND IDENTITY. But it has infuriated other Bells. A Bell lobbying group, as well as Nynex and Bell Atlantic, publicly denounced the Justice Dept. deal. "It's not a substitute for congressional legislation," says a Nynex spokeswoman. Bells say bringing in Justice only adds a new regulatory layer. The real beef, says Notebaert: "We're way ahead of the rest of the industry."

The $13 billion company won't see much immediate gain, but analysts figure Ameritech's head start will cushion the shock of local competition. Anthony F. Ferrugia, an analyst at A.G. Edwards, says he expects the "new revenue stream to offset any reduction from the core business." Notebaert has been readying Ameritech for competition for years--launching a $1 billion cost-cutting campaign, boosting marketing efforts to make Ameritech a familiar brand name, and hiring dozens of new executives from companies such as Borden, American Express, and MCI. True, every regional phone company is doing similar things. The difference is Ameritech will find out first if the strategy actually works.

Give A Little, Get A Little


Ameritech will be permitted to offer--on a trial basis--long-distance service in the Chicago and Grand Rapids markets sometime in 1996. The company hopes that regulatory approval allowing it to offer long-distance services, which is an $8 billion market in Ameritech's five-state region, will quickly follow.


In return for the long-distance trial, Ameritech has agreed to open itself to local competition in Chicago and Grand Rapids. AT&T, Sprint, and MCI have expressed interest in jumping into its largest market--Chicago.By Kevin Kelly in Chicago

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