The New Era Begins In Rochester

Competition in local phone service is more than just a dream in Rochester, N.Y. On Jan. 1, it became the first U.S. city in 75 years to allow residents a choice of local carriers. Rochester Telephone Corp. lets any and all comers connect to its network and its customers. The reward: an end to Rochester Tel's state-mandated profit limits and the right for it to offer long-distance and video services. The agreement makes this Great Lakes community of 750,000 a test bed for the telecommunications battle to come.

Granted, the change is not much in evidence yet. Time Warner Inc., the local cable company, has set up booths in malls around town to push a new cellular service, and AT&T is carrying out a direct-mail campaign to sign up customers for local calling. Other potential competitors are eyeing the market. But consumers aren't dashing out to change carriers. "I'm not really sure what's going on yet," says Valerie Huff, a high school math teacher. "Nobody's really talking about it."

ESCAPEE. Why Rochester? Mainly because Rochester Tel is not a Bell. Founded in 1899, it managed to avoid joining the vast Bell system and so escaped the many restrictions placed on the regional operating companies when AT&T was broken up. As a result, Rochester Tel--now reorganized as the local service arm of the Frontier Corp. holding company--has always been able to offer long distance outside its service region. It is the seventh-largest long-distance carrier and owns 34 other local phone companies in 13 states, making it the 12th largest local-phone company.

But it was still restricted from earning more than an 11% rate of return by the New York Public Service Commission. So Rochester Tel proposed ending its monopoly in return for an end to profit caps and freedom to compete. It agreed to cut rates 11% and freeze basic residential fees for seven years. Customers can keep their phone numbers if they switch carriers, and competitors must be allowed to connect seamlessly to the local network. Frontier Chairman Ronald L. Bittner says he's delighted. "We figured the worst form of competition is regulated competition," he says. "Besides, we had an ulterior motive. We figured the market would expand and we'd get a larger share, including other carriers paying to use our network."

It does look like a win-win situation initially. Until their networks are built, competitors will simply resell Rochester Tel service. That bothers AT&T. "It's a bad model because the customer doesn't really have any [network] choice," complains Joseph Nacchio, head of AT&T's consumer calling business. Rochester Tel, he says, is charging resellers 95% of its retail price, giving little room to offer cut-rate prices and still make a profit. "It's an interesting experiment, but naive," he says. Still, an AT&T spokeswoman says the company so far is doing "better than expected" in its first month back in the local phone market.

NO MAGIC WAND. Rochester Tel admits its model isn't perfect. "I empathize with AT&T's position," says Jeremiah T. Carr, president of Rochester Telephone. "You can't just wave a wand and have the local monopoly go away....I can't deny that customers won't think of us first."

Time Warner is determined to make Rochester more than an experiment. It has some 200,000 cable customers there and is upgrading its network for telephony. "We'll have dial tone by the third quarter sometime," promises Glenn A. Britt, president of Time Warner Cable Ventures. Then, the competition will really begin. Is Rochester Tel a little worried? Well, allows the silver-haired Bittner, "I used to have dark hair."

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