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What's the Hang-Up?

As PacBell Tries to Dial Into Long-Distance, Critics Say It Needs to Release the Line on the Residential Market


In a little-noticed building in Anaheim, 375 Pacific Bell employees work in shifts, sitting in neat rows, facing computers and typing in order after order for local phone service.

It's an unremarkable scene, except for one thing: The PacBell employees are not adding new customers, they are giving them away to new rivals in the local phone business.

That makes the Anaheim center--and another one like it in the San Francisco Bay Area--"Exhibit A" in PacBell's push to prove to phone regulators that there is enough competition in the state's $6-billion local phone market to allow the company to jump into the long-distance business.

On March 31, PacBell will become the fifth local phone company in the nation to apply for permission to offer long-distance phone service within its territory.

Under the 2-year-old Telecommunications Act, the nation's regional Bell operating companies--Pacific Bell and the other RBOC spinoffs from AT&T--may begin selling long-distance service. But first, they must convince regulators that the long-standing local phone monopolies have been broken.

GTE, which is not a Baby Bell and thus the only large local phone company not governed by the Telecom Act, has already begun selling long-distance service in California.

The Baby Bells are having a harder time breaking in. So far, the Federal Communications Commission has cited anemic competition and other shortcomings in turning away four applications from Bell companies, including one from PacBell's sister company, Southwestern Bell.

SBC Communications Inc. of San Antonio, which owns both Southwestern Bell and PacBell, challenged the decision. But last Friday, a federal appeals court in the District of Columbia upheld the FCC's finding that SBC had not adequately opened its local network to competitors.

Other aspects of the ambitious deregulation effort are mired in legal challenges as well, chief among them an SBC case that questions the constitutionality of many portions of the act itself.

"We had a Camelot moment when we passed the act," former Sen. Larry Pressler (R-S.D.), one of the Telecom Act's authors, said in a speech in Los Angeles. "I've been disappointed, quite frankly . . . the companies are squabbling and suing each other."

Last week, in an effort to jump-start competition, Sen. John McCain (R-Ariz.) introduced legislation that would set a deadline for allowing the Baby Bells into long-distance.

In the meantime, PacBell plans to press its case with regulators.

PacBell, which serves about 75% of Californians, will submit its application first to the California Public Utilities Commission. If it receives PUC approval, the company in August will submit the application to the FCC, which will make the final decision.

"Right now, the RBOCs are 0-for-4 [with the FCC]," conceded Bill Blase, vice president for regulatory affairs at PacBell. "But the [Telecom] Act is the act, and we think we've met the requirements."

Others disagree. Consumer groups are hoping for a flat-out rejection from the state and the FCC, and long-distance giant MCI Communications has begun an aggressive advertising campaign aimed at influencing state and federal regulators reviewing Baby Bell long-distance applications.

The ads feature "Ivan," a bearded and heavily accented fictional character in a Russian-style fur hat, who is shown lamenting over high prices and the lack of choice in phone service. He urges regulators to not let local phone companies into long-distance until he has a choice of carriers.

For California regulators, the dilemma is that while there is robust competition for the lucrative lines attached to corporate phones, the state's homeowners have largely been left out of the telecom free-for-all.

But PacBell points out that the rules don't provide a way to measure competition.

Instead, there is an arcane 14-point checklist to determine whether the Baby Bells have done their part to open their market to rivals--regardless of whether they accept the challenge.

In California, the challengers have largely fled the residential market, focusing instead on the high-profit business market.


A scant 1% of PacBell's 11.2 million residential phone customers have switched local phone carriers since state regulators officially opened the local phone market here to competition.

Some of the former PacBell customers are in Orange County, where cable operator Cox Communications is providing local phone service over its network to more than 2,000 customers in Rancho Santa Margarita.

In the next month, the company will expand into Laguna Niguel and Aliso Viejo, and its sister company in San Diego will follow suit later this year.

"The reception we're getting on it has been very positive," said Leo Brennan, general manager of Cox Communications of Orange County. But, he added, those early inroads are small compared with the market as a whole.

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