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Dial C for Local Competition in Phone Market : Communications: Consumer choice is on the horizon as state regulators nationwide eliminate barriers to alternative providers.


WASHINGTON — Despite the recent failure of federal legislation aimed at spurring competition in the telecommunications industry, local telephone service--the last stronghold of traditional telephone monopolies--is finally being subjected to the rigors of the marketplace.

From New York to California, state regulators are taking the lead in eliminating the barriers that have insulated local telephone providers from competition. Although the process is proceeding slowly, millions of Americans will probably be able to choose among competing local phone companies within the next several years, with the local cable television company emerging as the primary alternative.

Citing the favorable regulatory climate in Illinois, New York-based Teleport Communications Group said last week that it plans to team with its part owner, cable giant Tele-Communications Inc., and Motorola Inc. to offer local phone service early next year in suburban Chicago. The consortium will compete with the regional Bell telephone company Ameritech Corp.

The Teleport announcement came only days after the nation's No. 2 long-distance carrier, MCI Communications Corp., said it plans to compete against several Baby Bells by building local networks in five states.

Meanwhile, New York regulators approved a groundbreaking plan that would enable about 500,000 consumers in Rochester to enjoy full local telephone competition between Rochester Telephone Corp. and a unit of entertainment giant Time Warner Inc. And in Montgomery County, Md., SBC Communications Inc., formerly Southwestern Bell Corp., is seeking permission to invade the territory of rival Bell Atlantic and compete head to head for its telephone customers.

"Everybody is shifting their focus to the states . . . " said Bradley Stillman, legislative director of the Consumer Federation of America, a Washington-based nonprofit group. "We did not need federal legislation in 1994 to build (an information) superhighway."

State regulators say they have been able to make headway in part because, unlike Congress, they have not had to confront the divisive issue of how to allow the regional Bells into the interstate long-distance business, said Lisa Rosenblum, vice chairwoman of the New York State Public Service Commission. In 23 states--California is not among them--some form of local service competition is already allowed, according to the Alexandria, Va.-based State Telephone Regulation Report.

So far, deregulation on the state level--and especially the limited local service competition that now exists--has benefited mostly big business. But some would-be local access providers such as Teleport and MCI are beginning to target the mass consumer market.

"Teleport will provide local telephone service wherever there is a strong market demand for a choice, provided that it is technically feasible, economically viable and has been authorized by state regulators," said Robert Annunziata, president of the New York-based company.

However, the uneven pace of change at the state level has spurred complaints among customers, who have grown accustomed to falling prices and a wide choice of carriers for long-distance calling but are still forced to deal with expensive monopoly providers for their local service.

Telecommuters such as PC magazine columnist John C. Dvorak have complained that Baby Bells, such as US West, are letting their "phone business stagnate" by not moving fast enough to modernize their networks for home computer use.

Meanwhile, many consumer groups complain that phone rates are too high.

"There is a lot of concern about local rates and services even as people have become less concerned about long-distance, because there is more competition" in that area, said Michael Hefer, a senior staff member of Consumer Action, a San Francisco-based nonprofit group active in utility issues.

In theory, these problems will go away as local phone competition heats up, with customers enjoying lower prices and better service. In practice, though, some worry that competition will in effect be limited to the business market. And that prospect angers the telephone companies, who accuse their rivals of cream-skimming.

"My companies know that competition is coming," said Kathy Woods, director of regulatory relations for the U.S. Telephone Assn. in Washington. "But they want parity and fairness. As phone companies, we have had an obligation to provide universal telephone service; we can't pick and choose."

Nevertheless, phone companies have proven more willing to compromise at the state level than on Capitol Hill.

Bickering between long-distance carriers and the Baby Bells last month caused U.S. Sen. Ernest F. Hollings (D-S.C.) to pull the plug on the landmark federal legislation.

The failure of the measure, which would have allowed long-distance carriers, cable operators and local phone companies into one another's markets, triggered widespread criticism of Bell company lobbying tactics.

"Telecommunications reform was not only about responsible associations seeking compromise on important points . . . " Reed E. Hundt, chairman of the Federal Communications Commission, told the United States Telephone Assn. in a speech last week. "It was and it still is about huge companies in different industries retaining fleets of lawyers and armadas of lobbyists that battle Congress every hour of the day for months on end."

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