After Ma Bell. More choice. More confusion
At the ``college of divestiture knowledge,'' freshman year isn't over yet. Americans are still feeling their way through the strange surroundings created by the breakup of American Telephone & Telegraph on Jan. 1, 1984. The course catalog weighs in like the Los Angeles Yellow Pages. In the subject of long distance, for example, there are over 200 companies to choose from. And for the business-oriented student the big question is whether to study the third or fourth generation in office switchboard equipment. What about a class on mobile telephones? How about government regulation?
Though it's been a confusing time for the people who produce and the people who buy telecommunications equipment and services, one thing is clear: There's far more choice and competition in the industry than a year ago.
The number of new products on the market ``makes my head spin,'' says Jeffrey Kaplan, telecommunications analyst at International Data Corporation, a research and consulting firm in Framingham, Mass. In terms of technological developments, he says, the core of activity is centered around the merger of the telephone with the desktop computer. ``It's unbelievable how many devices'' are being created to tie together the many brands of office computers so they, too, can talk to each other, he says.
In long distance service, competition has chipped away at AT&T's market share. Different analysts -- and the long-distance companies themselves -- spew out different numbers, but the data show gains for companies like MCI and GTE's Sprint. According to the Yankee Group, a Boston consulting firm specializing in high-tech research, AT&T's share of long-distance revenues has slipped from 91 percent at the end of 1983 to 81.2 percent at the end of 1984. Competition's beneficiaries
Who is to benefit from the new choices? After the confusion in the marketplace is over, says Don Gooding of the Yankee Group, ``benefits will accrue mostly to both consumers and businesses who are willing and able to take advantage of the competitive environment.'' That likely means city dwellers and substantial users of long-distance services -- two areas under pricing pressure.
While residents will have to get used to the idea of access fees -- the $1 monthly charge they will begin paying their local phone company in June (and another $1 next year) -- this cost is likely to be balanced by lower long-distance costs, says Joseph Schatz, who specializes in telecommunications regulation and technology at Arthur D. Little Inc., the Cambridge, Mass., consulting firm.
``For the average subscriber, in total, costs should work out better,'' Mr. Schatz says. However, ``if you don't use long distance, costs will go up'' because of the higher price for local service.
Speaking broadly -- and bluntly -- Mr. Kaplan sees only business customers as the major beneficiary. ``Priorities for the local [phone] companies and the long-distance vendors are the guys who get them big bucks,'' he says. ``They will call on the corporate accounts and make sure they are happy.'' However, ``if they really neglect the local customer,'' he says, ``consumers will go to their state commissions'' which have rate and regulatory authority.
It seemed the only satisfaction a consumer could get from the Bell system breakup was a chance to go with a discount carrier and save up to 50 percent on long-distance calls. Quality problems were pooh-poohed by experiment-minded consumers ready for relief from Ma Bell.
Such low rates, however, are not to be counted on. The alternative carriers to AT&T Communications have had to increase prices in the last six months due to heavier than expected promotion costs, breakneck spending on capital equipment, and access fees owed to local phone companies. Last fall MCI raised prices 5 percent and Allnet upped rates 8 percent. At the beginning of March, Sprint put in a 2 percent increase.
The price gap between the other carriers and AT&T will narrow further as the giant company seeks Federal Communications Commission approval for rate reductions. Last year, the FCC approved a 6 percent reduction and another 4 to 5 percent drop is expected this June. ``Overall, rates are moving toward more market-based pricing,'' says Michael Moody, manager of business marketing for AT&T Communications. Turf fights for the office market
Telecommunications competition is just as fierce on the other side of the long-distance business. ``Phone suppliers are beginning to ring out,'' cites Mr. Schatz at Arthur D. Little.
The major battles to be won, however, are in offices, where companies want to be able to send voice, data, text, and video over one set of wires and at the same time -- without regard for different brands of equipment. Manufacturers are vying for this business with severe price cutting and with an eye for acquisitions.
``It's significant that IBM purchased Rolm,'' which makes electronic switchboards (called PBXs) for corporations, Mr. Schatz remarks. IBM also has an interest in Satellite Business Systems, a long-distance carrier that mainly relies on satellite transmission. Meanwhile, AT&T's introduction of personal and mini-computers and its local area network products show its intention to leave no desktop unturned.
New products have flooded onto this market. Even slow-moving AT&T, in its Information Systems division, more than doubled the number of new products from 1983 to 1984, according to a spokesman, with about half of them focused on merging voice and data.
``This [leap] never could have happened before the breakup,'' the AT&T spokesman said. The regulatory red tape of filing new products with every state utility commission, and then the commission's practice of publicizing the products, made it difficult to serve national customers and keep competitors away, he said. ``They would know everything about your product and pricing and pick you off.'' Arguments over regulation
But AT&T is not by any means satisfied with the regulatory relief it's gotten so far. Regulations still ``hamper the ability to bring new service offerings out quickly,'' says Mr. Moody, who is with the long-distance side of the company. AT&T, unlike its competitors, must apply to the FCC for approval of any rate changes.
Meanwhile, the company has one arm tied behind its back, it says, because it can't use its long-distance division to distribute its computers -- all the marketing of nonregulated business has to be done separately.
``I don't feel sorry for them,'' says Mr. Kaplan at International Data Corporation. ``You get the biggest guy on the block, tie his hand, and he can still beat up anybody, he's so big.''
In the short-term, any deregulation plans are likely to unfold only on the national level, say experts, while the state regulatory commissions which set local rates will remain fairly inflexible.
But even this will have to change, says Fred Konrad, assistent vice-president of regulatory affairs for Illinois Bell, the local phone company based in Chicago.
He says there is a 5-to-1 ratio difference in the cost between supplying a dial tone to rural areas vs. an urban area. Some customers, especially important metropolitan business customers, are subsidizing those rural customers. This makes it more difficult to keep their business customers happy with competitive rates, he explains.
At the beginning of last year, Illinois Bell, with the approval of its state regulatory commission, began desubsidizing rates, with urban residential and business users paying a lower monthly fee than rural users. Illinois Bell ``is the exception now,'' says Konrad, ``but the others will find out they've got to do it eventually.'' Chart: Long-distance market share (Percent of revenues) Before divestiture (1983) AT&T 91.0% MCI 3.6% GTE Sprint 2.1% Others 3.2% Post divestiture (1984) AT&T 81.2% MCI 4.4% GTE Sprint 2.6% SBS 0.7% Allnet 0.6% Others 10.5%