Bells suit up for long-haul battle

Mega local carriers Verizon and SBC Communications are now offering long-distance in several states, and all four regional Bell operating companies are optimistic they will obtain so-called 271 approval to enter the long-haul market in 2002, setting the stage for cataclysmic telecom change.

Why? Where incumbent local exchange carriers (ILEC) have entered long-distance they have, in short order, stolen huge chunks of market share from the traditional players.

Broadwing Communications, formed by Cincinnati Bell's acquisition of long-distance carrier IXC Communications, captured 65% of the long-haul business in its region when it entered that market. "If ILECs get into long-distance they will own a lot, fast," Broadwing CEO Rick Ellenberger said at an industry conference in May.

Within a year of offering long-distance in New York, Verizon captured almost 20% of the residential market share. In its latest quarter, the provider added 800,000 new long-distance customers in New York and Massachusetts.

The reason for Verizon's success, says Jill Wagner, vice president of marketing, is customers want one bill. She believes the same will ultimately be true for business users.

So far, neither SBC nor Verizon - which by some accounts control one-third of all access lines - have put much effort into winning over long-distance enterprise customers, notes Courtney Quinn, an analyst with The Yankee Group in Boston. It's simpler to target consumers with a vanilla long-distance package than go after enterprise users with complex data needs.

Thomas Nolle, president of consulting firm CIMI and a Network World columnist, says RBOCs won't be able to fulfill the needs of multistate companies until they have contiguous mass across multiple regions.

But that day is coming. Verizon, Nolle points out, could be close to achieving mass. With Massachusetts, New York and Connecticut already in the bag, Pennsylvania approval in progress and plans to add New Jersey in the near future, Verizon could have a large long-distance service area in the Northeast by the end of the year.

With increasingly fierce competition for enterprise dollars around the corner, Nolle says business users may want to hold off on signing long-term contracts. Even if the RBOCs can't offer anything better in terms of overall price, they may be able to offer services and packages that others can't. For example, RBOCs have traditionally been better than competitors at offering transparent LAN services and could potentially begin tying those services together between states, Nolle says.

Some companies won't switch even if RBOCs offer better pricing. Paul Lourd, director of IT for UST, a holding company for smokeless tobacco and wine subsidiaries in Greenwich, Conn., has been happy with the Sprint voice and frame relay service he has supporting 30 sites. Although he has had some problems in dealing with the local RBOC, he says he would be unlikely to switch providers, even if the RBOC was offering a slightly lower price.

Door is open

Despite RBOCs' grand plans, 271 approval is not automatic. To obtain long-distance approval under Section 271 of the Telecommunications Act of 1996, RBOCs must first convince local public utility commissions that they are allowing local voice competitors fair access to their networks. Then, they must file for 271 approval with the Federal Communications Commission.

So far, the FCC has approved only a handful of RBOC 271 applications, but the door is open. Besides Verizon's foothold in the Northeast, SBC has Texas, Oklahoma and Kansas in its long-distance portfolio. Qwest Communications and BellSouth have not yet won approval for any states, but both plan to have at least one approved by year-end and have bigger plans for 2002.

SBC recently ran into some problems on its 271 application for Missouri and withdrew the application temporarily to add more information about competition.

And during the last few years, the FCC has turned down all the Bells on several occasions, largely because their billing systems did not let competitors easily lease network elements from the RBOCs.

"It's definitely not a rubber stamp process," Yankee's Quinn says. "All of these guys came out of the gate with 271 applications [right after the telecom act], and all of them were shot down."

Even the recent approvals have not come easily. In every state approved so far, CLECs and interexchange carriers such as AT&T and Sprint have fought fiercely against 271 approval by trying to convince regulators the Bells are not fulfilling their obligations when it comes to local competition.

In Pennsylvania, Verizon narrowly won a 3-2 decision from public utility commissioners and only managed that after promising to meet a permanent performance-assurance plan and agreeing to pay stiffer fines for failure to meet that plan.

However, Quinn adds, RBOCs - in particular Verizon and SBC - have learned from their mistakes and are doing a better job of handling the 271 process.

Barbarians at the gate

What do the current long-distance providers make of all this? "Quite frankly, because of the RBOCs' monolithic local presence, they're able to surpass our long-distance market share in a matter of months after they enter a market," says James Fisher, a spokesman for Sprint. "No one's cracked their hold on the local market, so they are very tough to beat."

To compete with the RBOCs Sprint will come out with new services and bundles, Fisher says, although he declined to go into specifics.

Ideally, what long-distance providers and CLECs would like to see, Fisher says, is true local competition in a state before an RBOC is given permission to offer long-distance.

"If you walked up to a person in the street in New York or Texas and asked them if they had a choice for local voice service, they'd say no," Fisher says.

Some observers note that approval for long-distance data services could come sooner than next year, if the feds pass the Tauzin-Dingell bill, currently before Congress (see "A tale of two telecom bills," page 25). The bill seeks to encourage RBOCs to roll out broadband services more rapidly by removing restrictions on RBOCs providing long-distance data services in their home states.

"If the RBOCs continue going with the 271 process, we could begin to see significant service offerings early next year," CIMI's Nolle says. "If Tauzin-Dingell goes through in some form, we may see big RBOC data offerings by Q4."

Bells suit up for long-haul battle

Door is open

Barbarians at the gate

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