Regional phone companies gird for local toll-call competition. Competition by firms like MCI, Sprint could mean lower phone bills
Boston — Telephone customers across America are increasingly likely to see lower phone bills for local toll calls. These lower bills are expected to result from stiffer competition between the entrenched local telephone companies and long-distance alternatives, such as MCI and Sprint, within the local market.
In New England, the boundaries of each market are defined by area codes. In other states, there may be two or three local markets within an area code.
As the next step in deregulation of the telephone industry, a growing number of state utility commissions has allowed the competition as local markets gain enough maturity to support additional traffic, some as early as 1984.
Seventeen states allow local competition, including Minnesota, Louisiana, and Washington, and most ``are moving toward it,'' says Patricia Kravtin, economist at Economics and Technology Inc., a Boston-based telecommunications consulting firm.
Fierce competition from MCI, Sprint, and other alternative carriers in some of those states has forced the Bell operating companies to reduce local rates to keep their customers.
New York Telephone rates dropped about 25 percent in October 1985, says Dan Martin, rates analyst for the New York Public Service Commission, the regulatory agency, 1 years after competition was allowed.
In Massachusetts, competition within the local areas just kicked off on Dec. 1. But few companies jumped at the chance. Only NET, the mainstay local phone company serving the five-state region, flooded evening TV with soft-sell commercials.
``We stand ready to compete,'' says New England Telephone (NET) spokeswoman Ellen Boyd, but ``we haven't seen any immediate competition.''
Industry analysts say that the new kids on the block may be waiting to find out how easy it will be to compete with the firmly entrenched NET, part of NYNEX, one of Ma Bell's grown-up offspring.
As long as New England Telephone's usage rates are so high compared with costs, ``a market may look desirable relative to NET's higher rates, says EMI's Ms. Kravtin. ``But if NET lowers its rates. ...''
MCI and Sprint have been burned much too recently by the tight competition in the long-distance market to venture precipitately into any new local market.
Both are cutting costs and beefing up quality for the second round against an established competitor. The last time it was AT&T, this time it's New England Telephone and its siblings.
Local competition is forcing everybody ``to look very hard at the cost they are incurring,'' says Richard Fruchterman, spokesman for US Sprint Communications Company in Purchase, N.Y.
US Sprint is in the process of laying a nationwide digital fiber-optic network that will result in a tremendous quality and cost advantage, Mr. Fruchterman says.
MCI announced last week several efficiency-promoting moves to relieve ``increased pressure'' on profit margins, says Susan Sheridan-Welch, spokeswoman for MCI in Ryebrook, N.Y. It plans to cut back on staff, trim capital spending, and buy back its own stock.
Customers can use MCI to dial local toll calls now, says Ms. Sheridan-Welch, but there are technical and pricing points that have to be resolved before MCI promotes the service aggressively. She expects them to be taken care of within the next few months.
MCI does not yet have equal access to the local market (the ability of the consumer to dial ``1'' instead of an access code to get into an alternate carrier's local system).
MCI would also like the Massachusetts Department of Public Utilities (DPU), a regulatory agency, to review the access charges it will have to pay to plug into the NET system, Sheridan-Welch says.
Bob Werlin, general council for the DPU, says all parties, including the alternative carriers, agreed to the access charges.
But Sheridan-Welch is still uneasy about NET's pricing. If the access cost on a given call turns out to be higher than the NET price for that call, it will be hard for MCI to compete. She would like to see New England Telephone set prices as if it were charging itself the access charge.