- The Washington Times - Tuesday, March 6, 2001

AT&T; has thrown the latest punch in the telephone industry's fight over opening up its markets to competition.

The nation's largest long-distance carrier asked New Jersey utility regulators last week to split local phone service Verizon into two independent entities. AT&T; says Verizon's retail and wholesale units should be separated because by holding both, Verizon controls all the land lines, making it difficult for competitors to enter the market.

A bill suggesting such a breakup of Verizon was introduced in the Maryland legislature last week, but it was withdrawn Friday by its sponsor, Delegate Joan F. Stern, Montgomery County Democrat.

The legislation would have forced Verizon to split into two companies in Maryland.

Verizon, the Northeast's "Baby Bell," controls 97 percent of local calling in Maryland. Verizon has wire lines in 31 states as well as the District of Columbia and Puerto Rico.

Pennsylvania has been grappling with the issue of splitting up Verizon. The state Public Utility Commission has been considering the split for two years.

Federal legislators also have become involved in the issue as the feud grows.

Rep. W.J. "Billy" Tauzin, Louisiana Republican, sponsored a bill last year suggesting that local companies be allowed to enter the long-distance market without fulfilling their obligation under the Telecommunications Act of 1996 to open local service to competition first.

The bill was blocked, but a new version will be reintroduced, said Ken Johnson, Mr. Tauzin's spokesman.

Structural separation "is an unbelievable, bizarre proposal which we believe is anti-competitive as well as anti-consumer," Mr. Johnson said. "The way we can benefit consumers the most is by allowing full and open competition not only in the local market but in the long-distance market as well."

The Telecommunications Act of 1996 deregulated the telephone industry, allowing the local and long-distance providers to enter each other's line of business. The first step was for the local phone companies to open up their markets before they themselves can get into long distance.

But AT&T; Chief Executive Michael Armstrong said in a speech in Washington last month that the Verizon split is necessary so that companies other than the Baby Bells can move into the local calling market.

"AT&T; knows how to compete… . Give us the opportunity to compete, with no unfair barriers that favor incumbents, and we'll take our chances in the market," he said. "The Bells' monopoly power throws a dark shadow over the entire industry."

Company spokesman Mark Seigel said, "Having both the wholesale and retail operation together is a bit like the fox guarding the henhouse. This is simply a move to get the fox out of the henhouse and have those two operations separate and distinct."

But Verizon argues that AT&T;'s push for a split is only another hurdle the company is creating to slow down Verizon from entering the long-distance market, which AT&T; dominates.

"AT&T; is just trying to protect its long-distance revenues for as long as it can," said Verizon spokesman Harry Mitchell.

Structural separation, he added, is "a horrible idea for consumers."

"New Yorkers have enjoyed about $200 million in long-distance [calling] at local savings" since Verizon entered the long-distance market in the state last year, Mr. Mitchell said. "That's from the competition from AT&T;, Verizon, WorldCom and other local and long-distance service providers. This was done without any kind of split. So what AT&T; wants is a lab experiment with Pennsylvanians as the guinea pigs."

The company argues, also, that splitting it up would be so expensive that it would have to cut the costs of upgrading its network. This would slow down the development of new services and would result in higher fees for consumers, because the wholesale unit would have to cover for the losses incurred during the split.

That's why the Alliance for Public Technology, a group of more than 300 individuals who want affordable access to advanced telecommunication services, opposes structural separation.

"We think it's going to slow down the deployment of broadband services to lower-income people, rural Americans those who are currently underserved," said Debbie Goldman, public policy chairwoman for the D.C.-based group.

The Telecommunications Act has been slow to take off. The national average rate for local calling in 1999 was only 8 cents lower than it was five years ago, according to a report by the Federal Communications Commission.

Locally, Verizon still controls most of the market. It provides local calling services to 96 percent of customers in Virginia and 92.3 percent in the District.

"This has been a pretty big war of words between Verizon and AT&T; with AT&T; saying that, 'If the Bells don't become more cooperative, we're going to exit long distance because we're not making money' and that would be a blow to the FCC, which is trying to foster competition," said Michael Hodel, an analyst for the telephone industry with Morningstar in Chicago. "Just as it would be a disappointment if Verizon exits" the long-distance market.

AT&T; is not the only Verizon competitor that wants to split up the company.

"If the Bell companies had done a better job at implementing the Telecommunications Act, we would not need structural separation," said John Windhausen Jr., president of the Association for Local Telecommunications Services, a D.C.-based trade group that represents smaller local service companies. "But it's clear that under the current course they are very unwilling to comply with the act."

Mr. Windhausen said Verizon competitors hold 8 percent of the local calling market in former Baby Bell regions.

Shares of Verizon closed yesterday on the New York Stock Exchange at $48.13, down $1.38 from Friday. AT&T;'s stock rose on the same exchange $1.16 to close at $23.56.


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