Telecom Act Fizzles, Judging by Prices

A year ago today, the United States enacted a sweeping telecommunications law that was supposed to unleash the forces of competition, reduce prices for consumers in everything from cable television to local telephone service, and take a wrecking ball to the thick walls of industry monopolies.

One year later, consumers are scratching their heads, wondering what happened to that wrecking ball.

Most Americans still have no choice in who provides their local telephone service. Cable TV companies have raised rates, not lowered them, and have backed off plans to enter the telephone business. Telephone companies have also avoided head-on battles. The little competition that has emerged has come in sectors largely ignored by the telecommunications reform bill.

Consumer groups are discouraged by the lack of progress. "There is no certainty that competition will come," says Gene Kimmelman of Consumers Union's Washington office. "The more you allow monopolies to consolidate their power ... the less likely that others will be able to enter their business."

Telecommunications companies have an answer for all this: Be patient. Although little has happened that's visible to the consumer, much action is taking place behind the scenes, they say. This year will see more market-opening moves, and consumers should be able to take advantage of more choices and lower prices.

"We like to think of 1996 as establishing the rules and 1997 as implementing the rules," says Gerry Selemme, vice president of governmental affairs at AT&T. On Tuesday, the long-distance giant called on regulators to cut onerous access fees that it pays to local phone companies to interconnect with their systems. If regulators did that, AT&T pledged it would pass along the savings to consumers and would offer local phone service at or below prevailing prices.

Here and there, competitors have managed to bore little holes in monopoly walls. But overall, the initial results of the year-old law are not encouraging:

* Prices for telecommunications services have gone up. The average cable TV rate jumped 7.8 percent last year, more than twice the rate of inflation, according to the federal Bureau of Labor Statistics. Prices for long-distance phone calls between states rose 3.7 percent, and toll calls within states rose 6.1 percent. Pay-phone rates, which are to be deregulated this year, are expected to go up 40 percent, says Mr. Kimmelman. These price increases reverse the historical trend of declining real prices.

* Consolidation is accelerating. In the telephone industry, four of the seven regional Bell companies are merging: Bell Atlantic with Nynex, and SBC Communications with Pacific Telesis. British Telecommunications wants to buy No. 2 long-distance carrier MCI.

The same trends hold true in cable and broadcast television. Cable giant Time Warner has bought Turner Broadcasting. Westinghouse Electric, already a player in local television and radio, bought CBS. In all, sales of television and radio stations nearly doubled in 1996 over the year-earlier figure, according to one market-research firm.

* Monopolies, fighting hard to guard their turf, remain virtually intact. Long-distance companies, so far, have little to show for their extensive behind-the-scenes efforts to get local carriers to open their networks to competition.

AT&T, for example, has completed more than 52 interconnection agreements in 34 states, but still only offers local service in one community: Sacramento, Calif. Even there, it is limited to a few thousand customers because the local carrier, Pacific Bell, claims it cannot process more than 450 orders a day. So far, no regional Bell has been allowed to offer long-distance service, either. The law requires that a company must first show its markets are open. Ameritech, which wants to offer long-distance service in Michigan, was the first to file a request with the Federal Communications Commission.

The lack of competition is equally pronounced in cable television. During the debate over telecom reform, cable-TV companies and regional Bell companies butted heads rhetorically, each side claiming it would enter the other's business. Since the passage of the bill, both sides have largely retreated to focus on their own core businesses.

Besides a few trials around the country, the Bells acknowledge that providing video over phone lines isn't their priority right now. Despite a few market trials of its own, the cable industry is saying much the same thing.

"We're going to proceed cautiously here and make sure that the business case is clearly established," says Robert Thomson, senior vice president of Tele-Communications Inc. One reason the nation's largest cable company is pulling back is that its stock has taken a beating from investors skeptical about the millions of dollars spent on upgrading its systems for telephone service. Another reason is that TCI has found a new, cheaper technology for upgrading its network.

The new technology squeezes digital video pictures down to 1/20th their original size (instead of one-sixth using older methods). This means that TCI should be able to upgrade its systems for significantly less money than the more than $1 billion a year it expected to spend through 2000. While the new system won't allow the two-way communication needed to handle telephone calls, it will be able to handle the 150 to 200 channels of digital TV that cable needs to compete against the digital satellite systems, which have begun to steal away customers at an alarming rate.

Ironically, the services least affected by the reforms have seen the most competition.

Cable companies are having to cope with the remarkable success of the satellite mini-dishes that consumers are buying in droves.

Wireless phone service, long a cozy arrangement where only two competitors were allowed in any single market, is suddenly being opened up by a next-generation wireless network called personal communications service, or PCS.

The other new area of competition is the Internet, where cable and phone companies are all scrambling to provide access.

"Internet has tremendous potential," says Mr. Selemme of AT&T, which is offering nationwide Internet service. "But people haven't quite yet figured out how to make money at it."