The Baby Bells Should Put Washington On Hold

The Baby Bells have a problem. To move into the fast lane of the Information Superhighway, they want to get into such high-growth businesses as cable television, interactive multimedia, wireless networks, and long-distance service. But the price for these unregulated prizes is high: Washington isn't about to give the Bells free run unless they forgo their local-service monopolies and accept true competition.

But, oh, how tough it is to give up a cash cow. Which is why the Regional Bell Operating Companies (RBOCs) are leaving no legal or political stone unturned to press for a hospitable legislative environment. In their strangest move yet, four of the seven RBOCs filed a motion on July 6 asking U.S. District Judge Harold H. Greene, the man who has ruled on almost every aspect of their business since the breakup of AT&T 10 years ago, to end his overseer's role. Bell Atlantic, BellSouth, NYNEX, and Southwestern Bell argue that the consent decree that Greene enforces--which bars them from providing long-distance service, making equipment, or owning cable systems in their regions--is no longer valid now that competitors are pushing into local service.

The timing is odd, to say the least. Greene's role will become a relic of the regulatory past once Congress acts on pending telecommunications legislation that will override the consent decree. Any bill passed likely will allow the Baby Bells to move into long distance, cable TV, and other areas--but with the caveat that real competition must first develop in local phone markets. Industry experts expect the House and Senate to reach a compromise in September and pass a bill as early as yearend.

Court action on the motion to end the decree, meanwhile, would take years and would probably fail in any case. It's hard to imagine the formidable Judge Greene deciding that, what the heck, there's no role for him in the telephone industry he has overseen for 10 years.

Why are the RBOCs targeting Greene? Because they're unhappy with the legislation. "The House bill didn't give them as much as they wanted," says Bear, Stearns & Co. analyst Marion Boucher. "This petition is the Bells' attempt to vocalize all their trepidations over the final bill and have someone hear those."

GRIPING. The Bells are unhappy that the merged House bills would keep them out of long distance until the Justice Dept. decides they lack "the substantial possibility" of using their monopoly in the local market to impede competition. Since the RBOCs control 99.7% of their local markets, it could be years before Justice arrives at such a finding. Not many legislators seem to care about the Bells' beefs: The House passed its two telecom-market-opening bills in June by margins of 423-4 and 423-5.

Maybe the companies should be glad Greene has been overseeing their case. True, he is sitting on a lot of their requests for waivers to enter certain unregulated businesses, but that sword cuts both ways: He is also sitting on AT&T's request to buy McCaw Cellular Communications Inc., which will put the former parent in direct competition with the Baby Bells in local cellular service. And the Baby Bells don't need the judge's approval for such moves as Bell Atlantic's and NYNEX' new plan to combine their cellular operations--creating the No.2 cellular network after McCaw's.

Instead of griping, the Bells should have been trying to become more competitive. Only in the past year or so have they put in place stringent cost-cutting programs. And they haven't turned in a great performance in the unregulated cellular business. Each RBOC was handed a cellular license in its region when the frequencies were first allocated. The results: high rates, no widespread brand-name recognition, and uneven service. "The gene for marketing savvy was not passed on to any of the Baby Bells at the time of divestiture," says Salomon Brothers Inc. analyst Jack B. Grubman.

Perhaps the Bells should stop worrying about winning in Washington and figure out how to win in the real world.

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