Can Judge Greene Pacify The Baby Bells?

When a company settles a federal lawsuit, there's ordinarily a decent interval before the fighting resumes. Not so in the phone business. As soon as the Bell System was dissolved in 1984, the seven regional phone companies born of the breakup began maneuvering for relief. What Baby Bell lawyers and lobbyists lack in flair, they more than make up for in doggedness. Indeed, says William L. Weiss, chairman of Ameritech, the Chicago-based Baby Bell, their tactics are "almost like the Chinese water torture: drop, drop, drop."

The latest contest is over whether the Baby Bells should be free to create and own information services such as on-line data bases. The arbiter, as usual, is 68-year-old federal Judge Harold H. Greene, who scheduled oral arguments on the information services restriction for Apr. 18 and 19. These will help him decide whether lifting the ban would stimulate competition--or allow the Bells to use their local phone monopolies to squeeze out rivals.

In 1987, Greene ruled against giving the Bells carte blanche in information services. But an appeals court last year instructed him to reconsider and assess whether letting them in would serve the public good. The betting is that Greene will grant more freedom. However, says Janice Obuchowski, head of the National Telecommunications & Information Administration: "It's not clear that he is ready to do away with the restrictions in total."

CHIPPING AWAY. In any case, it's just one step. The phone giants are also pressing to enter long distance, telecommunications manufacturing, and cable TV. Their ultimate goal: full deregulation.

Each bit of freedom for the Bells creates momentum for more. An example is videotex, the computerized news, information, and shopping service. Once banned from it completely, the Bells were allowed in 1988 to create "gateways" that customers could dial to reach services provided by other companies. But now they say that the gateways won't succeed unless they can give the services a standard format. To do that, they need freedom from the information services restriction. Next, they hint, they may ask for waivers of the manufacturing ban so they can design low-cost terminals, and of the long-distance ban so that they can offer videotex from a single, centralized computer.

The Bells have a similar argument for cable TV. To provide advanced services, they say, they need to run high-capacity fiber-optic lines. But to justify that cost, they assert, the lines must carry cable TV, too. Cable companies disagree. Says John Wolfe, a spokesman for the National Cable Television Assn.: "We're concerned that once the barriers begin to fall, it will create an avalanche."

Other Bell opponents are equally concerned. Newspaper publishers fear that their $33 billion advertising base will be undermined by electronic or "talking" Yellow Pages that rival the immediacy of daily newspapers. Already, Cincinnati Bell Inc.--despite its name, not a Baby Bell--lets customers punch in codes from Yellow Pages ads to order faxes with updates on prices and products.

BRINGING CHAOS? Judge Greene won't rein in the Bells just to protect someone's turf. His concern is antitrust law: Will the Bells undercut other players through subsidies from their regulated phone businesses? Could they subtly discriminate, perhaps by repairing their own lines first when problems occur? "I don't want anyone controlling the network saying: 'My network's more important than your network,' " says Paul Zoukis, vice-president for marketing at General Electric Information Services Co., a data services company.

While technical and financial safeguards could deter monopolistic behavior, critics say the only certain cure would be full competition in local phone service. Then, companies such as GEIS could play one carrier against another. But the Baby Bells evince no desire to encourage such competition. Ameritech's Weiss says that would be a "march into chaos" that probably wouldn't win deregulation anyway.

Indeed, the Baby Bells have little reason to change their strategy now. Quite the contrary. With at least a partial information services victory in sight, their seven-year-old battle plan is showing genuine results.


Let customers use computers to browse through Yellow Pages that are

continuously updated


Sell access to their electronic listings so marketers can find out the name and address that belong to a certain phone number


Let large companies tap into the Bell switching computers to automatically

reroute calls or data


Promote videotex by using phone-company computers to make it easier for

customers to navigate through on-line information services


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