Two years out of nest, the Bell babies wing into new airspace

Two years after they were kicked out of the nest, the ``Baby Bells'' are beginning to develop their own flight patterns. And not only are most turning out surprisingly strong financial performances, but they're invading each other's airspace as well.

True, the Bell operating companies (BOCs) are more alike than different. Their revenue and performance still depend largely on how much state commissions allow them to raise rates.

Since they aren't allowed to get more than 10 percent of their revenues from nonregulated businesses like computer retailing, cellular telephones, and publishing, their mainstay is still plain old telephone service. That business is growing at 6 to 7 percent a year, tops.

So to boost growth and counter outside competition until their hands are freed from regulations (which many analysts think will happen sometime after 1986), the phone companies are entering new areas.

In responding to threats from the outside, the Bell companies are finding that some of their biggest competition is each other.

The BOCs face losing their most lucrative business customers to companies that can offer a whole range of services, from cheap long-distance rates to high-tech telecommunications equipment and services. (Bell operating companies can't manufacture their own equipment nor offer long-distance services.) So they're marketing aggressively to protect their turf.

Nynex has signed a contract with GTE to install any private branch exchanges (PBXs) that it sells through its retail outlets outside of its territory. For example, Nynex sold a PBX system to Polaroid, outside of Boston. But Polaroid also wanted a system in its Texas plant, so GTE installed it.

The GTE relationship ``keeps our customers from going to competitors for equipment,'' says Robert Varettoni, a Nynex spokesman. And now, he says, ``there's nothing stopping us from going into all 50 states.''

If and when the phone companies can make their own equipment, some of the Baby Bells already are set to sell it -- again, to each other's customers. Nynex now has 10 Datago computer retail stores, three of which are outside of Nynex territory. Bell Atlantic plans to open computer retail outlets in New Jersey through its acquisition of CompuShop, a nationwide chain with about 60 stores. That will pit Bell Atlantic against Datago, as well as Pacific Telesis's computer retail stores in the Northwest.

The Yellow Pages battle is also heating up. Southwestern is in the lead, having acquired Mast Advertising & Publishing, which turns out directories in 42 states and gives the phone company a national sales force. It also publishes 16 directories in the New York area, and Southwestern Bell hopes to have its Silver Pages, a directory for the elderly, in 92 cities within a year.

Other regional phone companies aren't sitting still. Nynex, for example, is publishing a Hispanic Yellow Pages for 10 communities in New Jersey -- Bell Atlantic's turf. US West has bought directory publishers in Florida (under BellSouth) and California (Pacific Telesis).

Mobile communications also know no boundaries. Here, three BOCs will be facing each other. If approved, Pacific Telesis will buy Communications Industries Inc., which has paging and cellular services in 15 major cities nationwide. (BellSouth tried to buy the company.) Bell Atlantic bought A Beeper Company, a national paging service, and Ameritech bought part of a Canadian cellular operator.

The regional phone companies ``are more worried about competing against the heavyweights'' in each industry they are venturing into than about each other, says Jean Graham, an analyst at Dataquest Inc.

Still, she says, being in the competitive marketplace is leading them to keep secrets from each. That's especially evident in their joint research efforts at Bell Communications Research Inc., or Bellcore. Most of the research work is to upgrade the network for equal access, which all have a vested interest in, says Ms. Graham. BOCs can pay Bellcore to do independent research, too, but if any other BOC wants to kick in some money, it gets access to the research. So proprietary research is done by the re gional or local company.

PacTel, for example, has developed a system that lets two people, on different extensions of the same telephone line, hold two different conversations. Or, a person could be chatting on the phone even as his personal computer is sending out or receiving information over the phone line. The technology would allow two voice transmissions and five data transmissions (like monitoring your home for proper heat or for burglary) at the same time. About 200 people living in Danville, Calif., will be trying out the system starting February or March.

Sounds great, but unless PacTel licenses the technology to the other Bell companies, it may be limited to PacTel customers. Bellcore was not involved in developing the technology, so it's proprietary.

``That's not to say we're steering away from Bellcore,'' says John Lucas, a company spokesman, ``but we don't want to be limited to Bellcore's R&D efforts.'' He says PacTel, which has applied for patents, expects to license the technology -- for a price.

This proprietary attitude will increase if the BOCs are allowed to manufacture their own equipment, says Graham. ``Everyone would want to make their own PBX,'' she says, unless the government steps in and mandates Bellcore to oversee the manufacturing.

Competition could eventually affect the regulated parts of their business, local phone rates. As the system stands, the BOCs like Nynex and Bell Atlantic, which are high-volume, low-cost operators, subsidize the high-cost (less populated) operators such as US West and Southwestern Bell. But Nynex and Bell Atlantic are afraid that if they don't lower the access costs to long-distance companies, the long-distance carriers will hook directly into big business customers (taking away a big source of revenue) .

Bell Atlantic has submitted a tariff that would lower the amount it pays into the pool that subsidizes the other companies. If the toll rates are de-averaged, ``rural rates would skyrocket,'' says one congressional aide involved in telecommunications legislation.

But the Federal Communications Commission is not about to let the Baby Bells fly out of orbit too soon. The low-cost regional Bells may want to shift the costs away from themselves, says Frank Patella at the FCC. ``But,'' he says, ``that doesn't mean we're going to let them.''

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