Specialized phone companies are giving AT & T a run for the money
Brighton, Mass. — Has Ma Bell been disconnected? Not literally of course, but the burgeoning alternate telephone service industry is quickly making inroads into the vast market of American Telephone & Telegraph Company (AT&T).
The oldest and largest of the "specialized common carriers," as the new phone companies are known, is MCI Communications Corporation. Since 1969 the company has battled AT&T in court for a share of the longdistance market. IT has won five consecutive lawsuits against the Bell system, the most recent being a record $1.8 billion judgment.
Besides MCI, three other companies are clamoring for a share of the $15 billion-a-year market for business-related calls. They include Southern Pacific Company and its Sprint service; U.S. Transmission Systems Inc., part of International Telephone & Telegraph Corporation, which operates City-Call; and Western Union Company.
All of the specialized carriers offer similar systems for long-distance hookups. Using a standard push-button phone, a customer dials the desired number, preceded by an access code that transmits the calls over a network of land-based mirowave towers. At its destination, the call is rerouted into the Bell system. the savings over AT&T' rate range from 20 to 75 percent, including a billing service based on ten-second increments rather than a full minute.
All four of AT&T's competitors are prospering. Spokesman Gary Tobin reports MCI's revenues for 1979 were $144 million, with plans calling for an investment on the order of $100 million in fiscal 1980 and $150 million in 1981, even though compensation from the AT&T suit must await final appeal. By March 1981 MCI will reach over 100 metropolitan areas, with access to three-fourths of all telephones in the US.
Despite the favorable court rulings and profitability of the new phone systems, "you probably won't see any new alternative companies," says Howard Anderson, president of the Yankee Group, a Boston consulting firm specializing in communications and computers. With start-up costs of $450 million, he explains, none but the largest of companies could even attempt it.
In addition, a new company must purchase for its microwave system a right-of-way that won't interfere with those already in existence. In urban areas, this would require extensive rerouting at prohibitive cost.
Instead of an increasing number of new phone companies, continuing expansion will take the form of augmented residential access, and "value-added service." The residential phone market is a $30 billion-a-year gold mine just now being tapped by the special carriers. The new companies wre originally formed to handle long-distance business calls, resulting in an underutilization of the system at night and on weekends. This provides a perfect opportunity to increase revenue with private long-distance calls at little extra cost.
Value-added service goes beyond voice transmission to include high speed data and imagery transfer, usually referred to as electronic mail. A number of companies, includging IBM and GTE, are entering this field of satellites and ultramodern technologies where voice transmission will play a minor or negligible role in their overall communication system.This blurring of distinction between communications and computers is one reason for the spate of judicial and legislative action concerning the phone industry.
A number of problems have nagged the new phone companies since their inception; the foremost being inconvenience. Including access code, a long-distance call may require punching as many as 23 digits. Some corporations handily avoid the problem with automatic dialers, a choice most residential customers cannot afford. But this drawback may be corrected through litigation, also.
Delays in getting through a call, or failure to connect altogether due to circuit overloads, is another complaint voiced by users of the system. This is probably a temporary difficulty, caused by a phenomenal growth rate with which new customers outpacing new facilities.