WAN Services /

Those Baby Bells are growing up fast

By Tim Greene
Network World, 11/20/00

Regional Bell operating companies aren't what they used to be.

For one thing, four out of seven RBOCs have disappeared since the Telecommunications Act of 1996 passed in February of that year.

Ameritech, Nynex, Pacific Bell and US West have been bought by other companies, with SBC Communications being the major buyer, snapping up Ameritech and PacBell.

Bell Atlantic was similarly active, swallowing Nynex and local/long-distance carrier GTE and renaming itself Verizon. Qwest Communications bought US West, leaving only BellSouth free-standing.

The consolidation of these regional companies has resulted in carriers with the assets and resources to become serious competitors to the likes of AT&T, WorldCom and Sprint.

While this growth has advantages, it hasn't been without pain to customers.

"Verizon is easier to deal with in that they are allowed by regulators to offer more options," says Bill Homa, chief information officer at Hannaford Brothers, of Scarborough, Maine, which operates 150 grocery stores on the East Coast. "But dealing with them still isn't my favorite experience."

As the RBOCs struggle to continually grow, they are following the course they set from the outset of telecom reform: Diversify beyond the local loop so they can offer customers packages of services.

The big carrot that the telecom act seemed to offer was the chance to sell long-distance service, but with the price per minute dropping, that is becoming less of a revenue draw.

After an initial flurry in the first year of the act to win the right to sell long-distance within their home territories, RBOCs have slacked off. So far, RBOCs sell long-distance in only two of their home states: SBC in Texas and Verizon in New York.

While not a high-margin business, long-distance bundled with other services is an easy sell. SBC and Verizon claimed 1 million customers within months of getting long-distance approval.

RBOCs have been more aggressive in other areas. For example, SBC aligned with BellSouth to create the joint venture Cingular, the second largest wireless network in the country. Verizon has bought Vodafone to create the No. 1 wireless network. AT&T wireless ranks third.

Beyond wireless, the RBOCs have made a push toward broadband access to consumers in the hopes of expanding the services they buy. They have devoted billions of dollars, extending the fiber in their networks. They have also become the dominant players in DSL access. SBC, Verizon and Qwest are the top three in DSL sales, according to Current Analysis. Some thought upstart providers would dominate this area, but the RBOCs have both stymied their efforts and chosen to team with them.

SBC's network upgrade program, called Project Pronto, relies on DSL to access customers, and plans call for voice and data to travel over those links. The company has made a deal with DSL provider Covad Communications to help install DSL for SBC.

Similarly, Verizon bought NorthPoint Communications, another DSL provider, to help its DSL effort. Qwest uses Covad and Rhythms NetConnections to roll out DSL. This supplements the DSL push US West developed before it was bought.

The DSL situation has some observers claiming the RBOCs are running roughshod over the intent of the telecom act, which was to increase competition. "The telecom act has been a total, unmitigated failure," says Robert Rosenberg, president of Insight Research.

He says the RBOCs wrangle with competitors over access to RBOC networks in an effort to slow them down and then absorb them, effectively eliminating competition. Plus the competitors that predated the telecom act and were skimming top business customers - such as Teleport Communications, Metropolitan Fiber Systems and Brooks Fiber - have been bought by long-haul carriers.

As RBOCs buy each other or are bought by other carriers, the resulting entities are much more formidable. Today, Verizon is headed for a $63 billion earnings year. That is roughly what AT&T expects to bring in. SBC is on track to break $50 billion, and BellSouth is headed for about $26 billion. Qwest is shooting for $18.8 billion (last year before the acquisition, Qwest made just $3.9 billion).

While these changes speak well for the RBOCs as expanding businesses, customers find faults with existing services as the companies grow. Account teams to large companies are no longer as stable as they once were and require customers to be more diligent, says Rich Glasberg, manager of data services for the Commonwealth of Massachusetts, which uses Verizon for its local services.

"They have a lot of new people who are not savvy to the particular procedures of different customers," Glasberg says. "It's a lot of effort by my folks to make sure they follow the right escalation procedures when something goes wrong. There's not much predictability that the people on their end know how we operate and what our expectations are."

Growing pains are showing at SBC, too, where the Federal Communications Commission says it is concerned about "increasing installation delays, longer repair times and greater difficulties contacting SBC . . . about service quality and other issues."

The FCC's letter focuses on the former Ameritech region and notes that "consumer complaints regarding service quality have increased in recent months in spite of SBC's explicit commitment when the merger was pending to devote greater resources to service quality after the merger closed."

While they may be faltering some along the way, the RBOCs are still most businesses' local exchange carrier and are trying to improve their performance. But it might take awhile.

"They'll take some time to get their acts together in developing [all-inclusive] packages for business customers," says Lisa Pierce, an analyst with Meta Group.