Change, and Hype, Hit Telecommunications

Phone companies will be transformed, but not quite in the twinkling of an eye

THE telecommunications industry is in the midst of a headlong rush to convert itself from happy settler to bold pioneer.

It is a backward transformation. But the urge to move beyond old borders is unmistakable. Consider the changes that have already taken place in the way telephone companies do business:

* Corporations are breaching national telecommunications boundaries. British Telecom owns 20 percent of the United States long-distance company MCI Communications Corporation. AT&T has already forged a deal with Japan's largest international telecom carrier and is seeking a European partner. ``I'd be very disappointed if we couldn't have something in the next couple of months,'' says AT&T executive vice president Alex Mandl.

* Industry mega-deals are blurring the distinction between local and long-distance service. In January, MCI announced it would build local telephone networks in 20 of the nation's largest markets. The company plans to offer limited business services at first but clearly hopes to expand into the full-service business and residential market.

This week the company also announced that it would invest $1.3 billion in Nestle Communications to build a nationwide wireless communications network. Such a network uses technology rivaling the cellular phone service offered by regional Bell companies and McCaw Cellular Communications Inc., AT&T's merger target. By contrast, the regional Bell companies, which now handle almost all local calling, want federal permission to offer long-distance service.

* With all the hoopla over the Information Superhighway, telecommunications companies are converging with the television and computer industries. Practically every Bell company is experimenting with some kind of video or information service. Southwestern Bell Corporation is forming a joint cable-TV venture with Co Cable Communications in Atlanta. US West is taking a 25 percent stake in Time Warner Entertainment.

So at some point, industry leaders predict, these industries will merge into a communications super-group. Exactly when this will happen is another matter.

The biggest TV-telephone deal so far fell through last week, suggesting that the would-be telecom pioneers are growing cautious. Since calling off his proposed merger with Tele-Communications Inc. (TCI), Ray Smith, chairman of the nation's largest cable company, Bell Atlantic, has toned down his rhetoric. The man who once said he was ``on the brink of inventing a whole new industry'' told brokers earlier this week that his company's new investments ``will not be the grand alliance we thought we could do with TCI.'' Instead, Bell Atlantic will focus on specific markets.

It is inglorious to say so, but in the near term, many of the forecasts about an industry transformation appear overblown. Telephone companies already do much of what they will do in 2000.

An example: One of Bell Atlantic's key targets is the fast-growing wireless communications market. Last year, the company's wireless revenues grew 49 percent while revenues overall increased only 2.6 percent. But Bell Atlantic's wireless customer base represents less than 6 percent of Bell Atlantic's bread-and-butter business - local telephone service. Even if wireless continued to grow at today's rate, it would take eight years to overtake today's offerings.

``It's going to be a lot different than what customers see today,'' says Brian Wood, a spokesman for Bell Atlantic's wireless business. ``Close to the year 2000, I think [this is what] you're going to see from the phone company: cable service, video, wireless.''

The hitch is that those services may not produce large revenues until the turn of the century.

Federal regulations could slow the trend further. Bell Atlantic and TCI blamed new cable regulations for deep-sixing their deal. Congress this year is also expected to decide when and to what extent local and long-distance companies will be able to play in each other's backyard.

Or look at the promised competition in the international arena. By 1998, the European Union says it will open its telecommunications market to new competition. Mr. Mandl of AT&T is skeptical. ``The year 1998 is maybe a starting point in some areas, but ... changing existing monopolies takes time.''

Eventually, truly international telecom groups will emerge. ``My sense is there are going to be three, maybe four companies, that will have a full-service offering,'' Mandl says. ``It will begin to change in the next couple years and move into an environment of further blurring of the borders in a three- to six-year program.''

Today's telephone companies will look a lot different tomorrow.

``Unequivocally, yes,'' says Kevin Inda, an MCI spokesman. ``We eventually see the distinctions between local, long-distance, and wireless falling.''

But out here on the telecommunications frontier, tomorrow is still a long way away.

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