Slam! Midwest Phone Firms War Over Mid-Range Calls

DOUG WHITLEY says he wants to defend consumers from getting "slammed" - having their long-distance phone-service provider switched without their knowledge. As head of the Illinois operations of local-phone giant Ameritech Corp., he says people want to make their own choices.

But competitors say Ameritech's anti-slamming campaign is a thinly veiled effort to thwart them and hold onto market share. "Under the guise of protecting consumers, Ameritech is attempting to circumvent this commission's orders on open and fair competition," three long-distance carriers said in a complaint filed last month to the Illinois Commerce Commission.

This phone fracas in America's heartland is about much more than just the bare-knuckled marketing tactic known as slamming.

The wrangle highlights rising competition in the $175 billion US telecommunications industry, stemming from last month's federal deregulation and also changes in state regulations.

Within the next decade, the contest could help slash the typical phone bill by as much as 70 percent, according to Forrester Research Inc., technology consultants in Cambridge, Mass.

Ameritech Corp. launched its high-profile campaign against slamming prior to an April 7 deadline to open up its monopoly on calls within Illinois to places more than 15 miles away. Such intermediate-range toll calls differ from both local and long distance service and account for 10 percent to 30 percent of revenue for the Baby Bells, as Ameritech and six other major providers of local service are known. Each of the seven serves a different region of the country.

The market for toll calls that never leave a Baby Bell's regional stronghold is one of the least restricted and most hotly contested areas of telephone service, with 48 states now allowing competition in principle. Still, technical complications continue to hinder newcomers. For instance, in all the 48 states except Kentucky, callers must dial an access code in order to use a carrier other than the regional Bell.

Ameritech has persuaded 1.5 million of its 13 million customers to formally ask it not to shift their phone service to another carrier without their approval. Critics say Ameritech's policy gives it the chance to make counter offers to customers trying to switch to another carrier in the in-region market. (So far, none of the Baby Bells is allowed to offer complete long-distance service, and consumers have little choice of local nontoll service providers.)

THE squabble in Illinois illustrates that even as the Federal Communications Commission advances national deregulation, state agencies and rival carriers are taking the lead in removing obstacles to a free market in each state.

"The [deregulation] bill is great, but it leaves so many complexities unaddressed," says David Goodtree, an analyst at Forrester.

The law, signed by President Clinton last month, gives the federal stamp of approval to efforts by local and long-distance carriers to turn toe-dipping entries into one another's markets into full-fledged assaults. The bill also allows phone carriers to provide video services and cable-TV companies to offer telephone services along their lines.

Deregulation promises profound change for virtually everyone who handles a phone, industry analysts say.

For industry employees, consolidation and other restructuring could trigger a rash of layoffs like the current discharge of 40,000 employees by AT&T. For the common consumer, the result promises to be lower prices and greater choice of services.

Competition will most squeeze the Baby Bells, which provide local service. They have thrived as the government shielded them from competition. They wield a war chest they could readily expand to $25 billion by exacting payroll and dividend cuts and raising debt, Forrester estimates.

But the long-distance carriers exert a coast-to-coast reach and brand-name appeal the Bells and cable-TV companies can't match.

Before a Bell may fully enter long-distance service, it must meet 14 criteria designed to ensure that rivals can compete with it in its region. For instance, a Bell must allow customers to retain their phone numbers if they switch carriers and must give rival firms access to 911 services.

Because "the long distance market is already competitive and the local exchange market is a government-created monopoly, the Baby Bells are more likely in the long term to lose," says Ira Brodsky, president of Datacomm Research in Wilmette, Ill.

Others are not so sure who the winners will be.

Ultimately, industry players will probably integrate into a few large carriers, each offering a full menu including Internet access, direct TV, and local, long distance, and cellular telephone services, say industry analysts.

Steve Nowick, president of long-distance operations at Ameritech, compares the likely changes with what has happened in food retailing in this century. The phone industry will move from the equivalent of the butcher, baker, and other specialty stores, to the supermarket, and then to the superstore and "category killer," he says. "It will be a big gain for consumers."