Telecom//LK1st/mark2nd

By SARA FISHER

Staff Reporter

When it was signed into law, the federal Telecommunications Act of 1996 promised to revolutionize the phone industry reducing rates and stimulating innovation by opening the market to competition and innovation.

But after more than two years, companies attempting to break into L.A.’s local phone-service market say that little has changed.

Pacific Bell, a subsidiary of SBC Communications, and GTE still control the lion’s share of the market, and both are being accused of unfair business practices that have left local competition floundering.

Pacific Bell and GTE, which enjoyed longtime monopolies in the local phone market, are legally required to share facilities such as switching technology and actual space for competitors’ circuitry with their new rivals.

But several competitors report that the incumbents have denied them access to their facilities and even disconnected the calls that do get routed through their machinery.

Pacific Bell and GTE executives deny the charges.

“The monopoly of local markets is dead,” said William Blase, Pacific Bell’s vice president of regulatory issues. “There is competition on the business side of the local telephone markets. We want to see competition to continue to emerge, and we are doing everything in our power to facilitate that.”

A GTE spokesman said that the company has not received any formal complaints from the 70 companies currently using space in its offices.

Still, the grumbling continues.

“I find it straining credibility that competition has emerged to the extent (Pacific Bell) claims,” said Doug Garrett, senior director for competitor ICG Communications. “If that were the case, we wouldn’t have to struggle to explain our financial results to our investors every quarter. There has been some movement in competition, but it’s like pushing sand uphill.”

These charges, among others, were flying last week at a forum on local telecommunications competition held at the University of Southern California. Although intended to provide an open discussion about the problems facing the industry, the session degenerated into lots of finger pointing.

An attorney for the California Public Utilities Commission, Helen Mickiewicz, called Pacific Bell “litigious and not collaborative.” Blase retorted by calling a recent PUC report on Pacific Bell activities “filled with inaccuracies.”

Lois Hedg-peth, AT & T; president for the Pacific and Western United States, found Pacific Bell’s behavior “exceedingly difficult.” Richard Smith, director of regulatory affairs for Cox Communications, recounted that his company had experienced a series of unidentified problems with both incumbents that should be “reported to ‘Unsolved Mysteries’.”

Much of the acrimony could have been predicted, given that the industry is changing rapidly and the money at stake is huge.

Local phone services constitute a $100 billion-a-year industry nationwide. In pursuit of that pie, over 40 new telecommunications companies have entered the Los Angeles region alone. The new competitors including Nextlink, Allegiance Telecom, Level 3 Communications and Teligent have each invested hundreds of millions of dollars in California, believing they will eventually will be able to recoup their costs.

“The competitors have a steep learning curve in front of them and a lot of debt behind them,” said Jeannette Noyes, an analyst at International Data Corp. “L.A. is going to be particularly active as a prime market, but the (competitors) will be watching anxiously with so much debt on their heels. It will be slow going.”

Part of the problem, Noyes added, is that the regulators may have been na & #271;ve about the ease with which the local phone-service market could be deregulated.

Pacific Bell, in particular, has a vested interest in fostering a competitive market, because only then will the PUC allow it to enter the highly profitable long-distance phone industry. This incentive has left both the competitors and the PUC all the more frustrated by Pacific Bell’s allegedly obstructionist actions.

Competition is creeping into the area, albeit at an excruciatingly slow rate. Pacific Bell still controls between 75 percent and 80 percent of local phone services in both L.A. County and statewide. GTE controls the remaining 20 percent. That leaves a mere 3 percent or so of the market open to the new competitors.

Steve Slusser, general manager of Covad Communications, said his company had to delay rolling out its local phone services in Los Angeles by six months because of anti-competitive practices.

“Pac Bell is up to a lot of shenanigans,” he said. “We had to file a lawsuit against them to give us space in their central offices. There has been broken equipment, or they won’t turn on the lights in our cages (the space for equipment in the phone facility). GTE requires less equipment but charges more. We have found this whole process to be over-burdensome.”

The PUC, which has been overseeing the deregulation process, also has taken issue with Pacific Bell. Its recent report found that the company had met only a fraction of the requirements necessary for open competition.

Not all new competitors report difficulties in working with the former monopolies.

“We’ve had a cordial experience with the incumbents,” said Janette Corby, regional vice president of Allegience Telecom and a former Pacific Bell employee herself. “We’ve been able to work collaboratively with them.”

Amid the industry infighting, there is a strong sentiment that the PUC will have to help foster a more openly competitive market by clarifying a number of issues surrounding the business and residential local phone industry left open by the Telecom Act.

As far as the promised cost reductions resulting from deregulation, Jim Conran, a representative of the California Small Business Association and the California Small Business Roundtable, said that his constituents have yet to see any benefits.

“We do not think the current process is going to work until the PUC steps in for regulation,” he said. “We’re not sure who to blame for the lack of competition, but it has been kind of entertaining to watch everyone kicking each other.”