Cable company MediaOne has begun offering local telephone service in Los Angeles County, officially ending the monopoly that GTE and Pacific Bell have enjoyed for decades.
“Competition has arrived, which no one else has pulled off here,” said Barbara Hockert, senior vice president of telephony for MediaOne’s Western region, which is based in El Segundo. “We are very proud of that accomplishment.”
MediaOne’s new phone service is carried over the same hybrid fiber-optic coaxial cable that brings customers cable television and high-speed Internet access. The service currently is available to only 35,000 homes in Culver City and parts of West Los Angeles, but MediaOne intends to expand its phone service to 254,000 homes by end of this year. The next cities to be offered the service include the rest of West L.A., Westchester, Cypress and Carson.
MediaOne is the first new provider to enter the newly deregulated L.A. phone market, a move made possible by the 1996 Telecommunications Act. But its initial foray drew tepid reaction from industry observers.
“The cable company is kicking sand in the face of sleeping giants by offering telephone services, but they may not get the reaction they had expected,” said Ted Henderson, managing director of research at Englewood, Colo.-based Janco Partners. “Lawmakers in Washington thought that cable and telephone companies would sling it out on the marketplace, but you’re looking at an environment where incumbents are holding on.”
But MediaOne could have the wherewithal to become a major player. Its cable system has the capacity to hook into 25 percent to 30 percent of homes in the Greater Los Angeles area, even though its phone system is only gradually being phased into that big infrastructure.
“If the incumbents are not watching now, they will be,” said Jeremy Stern, MediaOne vice president of corporate and legal affairs. “We are pushing very hard to enter the marketplace.”
A spokesman for Thousand Oaks-based GTE California said the company is closely watching to see how customers react to MediaOne’s service.
“Obviously competition is good for the marketplace,” said GTE’s Mike Murray. “Now it will come down to customers looking at the new providers for service reliability and customer service. We’re confident that we have that history of performance backing us.”
While GTE and Pac Bell have established track records, MediaOne says it has an edge on price and technology.
GTE and Pac Bell preferred to de-emphasize dollar-for-service comparisons, and instead offered somewhat congratulatory comments.
“Pac Bell welcomes MediaOne into the community,” said Steve Getzug, a Pac Bell spokesman. “Their entry proves what we have been saying all along: that competition does exist, that the market is open, and that people have a choice.”
Based on the cost comparisons available, MediaOne’s claimed savings seem small, but may become more pronounced when more-extensive service packages are ordered.
MediaOne is charging $39.95 per month for one line fully loaded with 18 features including call waiting, caller ID and call return (*69) and over eight hours of local toll calls. Two lines, fully loaded and with the free hours of local toll calls, cost $59.95 a month.
Pac Bell charges $36.20 for its “The Works Saver Pack,” which includes 13 of the 18 features that MediaOne provides and has no free time. For two lines, fully loaded, Pac Bell charges $72.40 a month.
GTE charges essentially the same $40 as MediaOne for its one-line service. GTE did not provide cost figures for its two-line package.
MediaOne conceded that its savings are not as impressive on more-basic service packages. “The savings increase the higher you go up the price scale, and obviously depend on caller habits,” Hockert said.
Regardless of exact savings, analysts are skeptical whether MediaOne will enter the market on a level sufficient to push down overall phone rates.
“MediaOne will have to take a lot of telephone subscriptions away from the telephone companies in order to drive pricing down, and while MediaOne has stuck a toe in the water, I don’t foresee them having enough impact alone to force a substantial change in prices,” Henderson said. “It looks as if MediaOne is pursuing telephone services on a relatively modest scale, looking for a turnout of maybe 10 to 11 percent” of the homes its existing cable system could access. That would translate to 2.5 percent to 3 percent of the overall Greater L.A. market.
MediaOne has had to overcome significant challenges to be a trailblazer in the deregulated market.
“In addition to the challenging logistics of building a business from scratch and (investing) over $250 million to upgrade our broadband cable in L.A County over the last couple of years, we’ve also faced some local barriers to entering the market,” Stern said. “Santa Monica delayed us by seven months before giving us permission to link our lines to the public (telephone infrastructure).”
Consumer apathy may be the biggest challenge of all.
“People are notoriously slow to change when it comes to utilities,” said Henderson. “Many still haven’t figured out their long-distance phone options. It will take some time to see how they react to choices in the local market.”
MediaOne has kicked off a multimillion-dollar advertising and educational campaign to promote its phone service.
“Our belief is that we are offering a great opportunity to use our broadband network,” Hockert said. “We launched the telephone service in Atlanta a while ago, and our customer base there has exceeded our projections. We expect to see a similarly strong performance here.”