[Congressional Record Volume 141, Number 170 (Tuesday, October 31, 1995)]
[Extensions of Remarks]
[Pages E2073-E2074]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

[[Page E2073]]


                             CALLS WAITING

                                 ______


                            HON. WES COOLEY

                               of oregon

                    in the house of representatives

                       Tuesday, October 31, 1995

  Mr. COOLEY. Mr. Speaker, the telecommunications industry is 
undergoing tremendous change. The advent of new technology has brought 
both new opportunities, and new anxieties, to millions of Americans.
  Recognizing the tremendous shift in telecommunications, the U.S. 
Congress is on the verge of passing sweeping legislation which would 
free companies from years of stifling government regulation. Although I 
applaud these efforts, we must be cautious not to assume that fair and 
open competition will be the immediate result.
  So that we may all be more aware of the potential difficulties in 
transitioning to an open market, I commend to you an article recently 
printed in the Wall Street Journal. This article should force us to 
approach the question of telecommunications deregulation cautiously, 
and with the proper consideration to the hundreds of thousands of 
Americans who rely on a vibrant, competitive communications industry 
for their livelihood.

             [From the Wall Street Journal, Oct. 24, 1995]

  Calls Waiting: Rivals Are Hung Up on Baby Bells' Control Over Local 
                                Markets

                           (By Leslie Cauley)

       Grand Rapids, MI.--The color-coded maps pinned to office 
     walls tell the story of US Signal Corp., which has struggled 
     for more than a year to get a toehold in the local telephone 
     market here.
       ``This is where we are,'' says Martin Clift, US Signal's 
     director of regulatory affairs, as he points to a small patch 
     of yellow covering 10 downtown blocks. ``This is where we 
     want to be,'' he adds as he motions to the entire 238-square-
     mile service area. ``But they won't let us.''
       ``They'' are executives at Ameritech Corp., the Chicago-
     based regional Bell that holds a monopoly on service here in 
     US Signal's hometown. US Signal says Ameritech has fought 
     nearly every step of the way as the upstart tries to expand 
     into this community of 500,000 in the heart of Ameritech 
     territory.
       US Signal hoped to cover half the city by now, but has been 
     able to lease only about 1,700 of the thousands of lines it 
     wants from Ameritech. For most of the past year, the Baby 
     Bell has refused to let it branch out unless US Signal 
     installs expensive gear US Signal says it doesn't need. The 
     smaller rival accuses Ameritech of dragging its feet in 
     processing orders, trying to levy bogus fees and refusing to 
     refund $240,000 for services it never provided. The bickering 
     has cost US Signal more than $1 million in legal fees--far 
     more than the revenue it gets in the market. US Signal 
     Executive Vice President Brad Evans says: ``We are at the end 
     of our rope.''
       Ameritech denies that it has treated US Signal unfairly.


                           Arsenal of Tactics

       More than a decade after the federal government broke up 
     the old AT&T empire, spinning off the seven Baby Bells to end 
     anticompetitive, behavior, the Bells employ an arsenal of 
     tactics to keep competitors at bay. Rivals say the Bells have 
     stalled negotiations, imposed arbitrary fees and set 
     Byzantine technical requirements that jack up costs and cut 
     profits.
       ``They can virtually make competitors' lives hell,'' says 
     Terrence Barnich, formerly the top telephone regulator in 
     Ameritech's home state of Illinois.
       The Bells insist they play fair and say they have an 
     obligation to protect their shareholders and the huge 
     investments in their networks. While rivals often target only 
     the most lucrative customers, the Bells alone have the 
     responsibility to provide service for everyone, even the 
     poorest and most hard-to-reach customers. It is critical, 
     therefore, that new regulations don't unfairly favor 
     newcomers merely for sake of encouraging competition, they 
     say. ``We don't believe standing up for fair rules is 
     anticompetitive,'' says Thomas Reiman, an Ameritech senior 
     vice president.


                           Race to Deregulate

       Now Congress is racing to deregulate the nation's 
     telecommunications markets. Bills have cleared the House and 
     Senate, and a conference committee is hammering out joint 
     legislation. Passing a new law will be the easy part. 
     Unraveling the government-sanctioned local monopolies--and 
     ensuring that the Bells play by the rules--will be far more 
     difficult.
       ``It will be extremely messy,'' says Eli Noam, director of 
     the Institute of Tele-Information at Columbia University in 
     New York. ``It will take a long time for a new competitive 
     equilibrium to be reached--if ever.''
       Congress wants to let the Bells enter the lucrative long-
     distance business after they meet a ``checklist'' showing 
     their local markets are open to competition. Yet local 
     service still provides more than 90% of their combined annual 
     profits. Rivals fear the Bells will exploit vagueness in the 
     legislation (what constitutes ``fair'' pricing and ``timely'' 
     negotiations?) to protect their turf.
       Ameritech, which serves a five-state region in the Midwest, 
     takes pride in being the first Bell to embrace opening up the 
     local monopoly. Its ``Customers First'' plan, unveiled two 
     years ago, hailed ``a fully competitive communications 
     marketplace.'' It embodied the basic Bell pitch to 
     Washington: We will let rivals in--if you let us into long 
     distance. The Bells were banned from that market under the 
     terms of the 1984 AT&T split-up.


                            Negotiating Ploy

       But US Signal and other competitors say Ameritech fails to 
     live up to its Customers First plan. The Baby Bell says 
     it has treated US Signal fairly and rejects assertions 
     that it drags out negotiations or hinders rivals. It says 
     it tries to accommodate them as best as it can and that 
     most complaints are a negotiating ploy.
       ``There are fundamental issues on which we aren't going to 
     lie down and die, just for fear of being branded as 
     anticompetitve,'' says Ameritech's Mr. Reiman. Steve Nowick, 
     president of its long-distance unit, says rivals expect the 
     Baby Bell to juggle ``27 variations'' of the same request. 
     ``There is a lot of complexity here. We're dancing as fast as 
     we can.''
       Ameritech has abundant company in the litany of complaints 
     lodged against the Bells. For example:
       Nynex Corp. last year touted itself as the first Bell to 
     sign a contract letting a competitor hook up directly to its 
     network. But last week the rival, Teleport Communications 
     Group, asked New York state regulators to ``investigate 
     Nynex's attempt to stifle local telephone competition.'' The 
     pact was supposed to be implemented within 60 days. Sixteen 
     months later, most of the terms still haven't gone into 
     effect.
       Nynex denies the charges and accuses Teleport of 
     ``grandstanding.'' It also says the rival is behind in paying 
     its bills, which Teleport denies.
       US West Inc. of Denver tried to convince a rival--believed 
     to be AT&T--that they should avoid each other's markets, a 
     lawsuit in Delaware Chancery Court alleges. US West denies 
     the charge, leveled two weeks ago by its partner-turned-
     adversary, Time Warner Inc. AT&T declines to comment.
       In a complaint filed with the Justice Department this 
     month, LCI International Inc., of Reston, Va., says US West 
     shut off service to 4,000 LCI customers in the Denver area, 
     prompting 24% of them to cancel. It says US West hurt LCI in 
     several markets by failing to provide services as promised. 
     When some customers called US West to complain, they were 
     told LCI had gone belly-up, the complaint says.
       US West concedes that ``errors occurred'' but says they 
     were inadvertent.
       SBC Communications Inc., the San Antonio-based Bell, 
     charges huge markups when selling network equipment to 
     rivals, MFS Communications Co. of Omaha, Neb., contends. 
     Other Bells let rivals buy gear elsewhere and pay the Bell to 
     install it. SBC requires that they buy from SBC. It charges 
     $137,000 for a pair of ``multiplexers'' that usually cost 
     $67,000; and $21,000 for running a cable that typically cost 
     $900, MFS claims.
       SBC says it marks up prices by 25% at most, as allowed by 
     federal rules. It declines to release any specifics and says 
     its rates are confidential.


                            Unequaled Power

       Conflicts with the Baby Bells, however, underscore the 
     unequaled power the Bells have in dealing with rivals. The 
     Bells still lock up 98% of local revenues in their regions. 
     That stems from their control over millions of phone lines 
     that reach into homes and businesses--an infrastructure that 
     took $100 billion and most of the 20th century to put in 
     place.
       For new entrants, duplicating these ``local loops'' that 
     run from Bell switching centers to customer sites would be 
     financially impossible. So they try to lease Bell lines at 
     ``fair'' rates, count on the Bells for seamless technical 
     links and access to switching sites, and depend on them to 
     fix things when service goes down.
       That sparks clashes on seemingly small items. Teleport, 
     which serves business customers, accuses Nynex of hoarding 
     phone numbers. In a complaint to the Federal Communications 
     Commission last week, Teleport, of Staten Island, N.Y., says 
     it asked the Bell for 60,000 numbers in Manhattan's 212 area 
     code but got just 20,000. Some big accounts can use 5,000 at 
     a crack. It sought an additional 20,000 numbers in the Bronx 
     but says Nynex refused to provide 

[[Page E2074]]
     them until Teleport installs an unneeded switch at Nynex's Bronx site.
       Nynex's director of regulatory planning, Larry Chu, 
     questions whether Teleport ``really needs'' 60,000 numbers in 
     Manhattan. He says the Bronx incident was a 
     ``misunderstanding.''


                        Interconnect to Network

       If a newcomer wants to sidestep Bell lines and partner up 
     with, say, the local cable-TV system, it still must 
     ``interconnect'' to the Bell network so calls can go through. 
     In negotiating interconnection agreements, rivals say the 
     Bells often drag out the talks to thwart them. Only a few 
     deals have been reached.
       Most Bells won't let rivals near their own equipment once 
     it is installed, unless they have a Bell escort. That adds to 
     rivals' expenses and ensures that the Bells know exactly what 
     the newcomers are up to.
       When a Bell installs a rival's gear, it charges rent for 
     the space the electronic boxes occupy. The fees ``can be more 
     expensive than a penthouse at Trump Tower,'' quips Andrew 
     Lipman, an MFS senior vice president. Setting up in a 10-by-
     10 foot space, cordoned off with chain-link fencing, can run 
     $60,000 up front, plus charges for power, cabling and rent 
     that can add up to $2,000 a month.
       Once inside, rivals don't exactly get the welcome mat. Bell 
     Atlantic Corp. employees in Philadelphia once refused to let 
     MFS workers use the restrooms because they weren't required 
     to by the FCC. ``To us, that epitomized the kind of obstacles 
     we face every day,'' MFS's Mr. Lipman says.
       Bell Atlantic spokesman Eric Rabe responds: ``I`m sure when 
     Wendy's shows up next to McDonald's, they don't exactly roll 
     out the red carpet. That's the nature of competition.'' He 
     says the company is getting better at working with rivals.


                            AT&T in Chicago

       Even giants haven't fared well in negotiating with the 
     Bells. AT&T, one of the world's most powerful 
     telecommunications companies, has been trying to break into 
     the Chicago market under Ameritech's Customers First plan 
     since last spring, to no avail.
       AT&T says Ameritech won't disclose where ``conduit space'' 
     is available for AT&T to install new lines, thereby hindering 
     AT&T in designing its network. The long-distance giant has 
     resorted to having its engineers walk the streets, peeking 
     under manhole covers to find the space.
       Although AT&T had hoped to launch local service later this 
     fall, it now says it doesn't know when it will proceed.
       ``This process just hasn't worked,'' says William Clossey, 
     an AT&T regional vice president.
       Tom Hester, Ameritech's general counsel, says of AT&T: 
     ``Here they are, one of the world's largest corporations with 
     a tin cup expecting us to fill it up.''
       US Signal had hoped to avoid such experiences in Grand 
     Rapids. Local entrepreneur Ron VanderPol founded the closely 
     held company in 1983, aiming to get into long distance in the 
     wake of the AT&T split. US Signal now derives about $80 
     million a year in long distance, mostly in Ameritech's 
     region. It figured its hometown would be the perfect place 
     for getting started in local service.
       The city ostensibly was one of the nation's most open local 
     phone markets. A 1992 state law--supported by Ameritech--
     required local phone companies to let rivals hook up to their 
     networks.


                             major hurdles

       US Signal filed for state approval as a local carrier in 
     April 1994 and planned to offer service by the fall. But 
     after US Signal's first meeting with Ameritech later that 
     month, ``we knew we had major hurdles,'' US Signal's Mr. 
     Clift says.
       The Bell balked at leasing out any of its phone lines, 
     depriving US Signal of a way to reach customers.
       Ameritech negotiators also wanted to charge US Signal $4.40 
     per name to list customer phone numbers in Ameritech 
     directories. Yet US Signal says the Bell pays phone companies 
     in adjacent areas 30 cents apiece to list the other 
     companies' customers' numbers.
       US Signal also says Ameritech refused to refund $240,000 
     that it had paid it to install gear in five switching sites. 
     The gear was never put into place. Ameritech says it spent 
     the money preparing the sites, then decided against 
     installing the equipment. It did so after a federal appeals 
     court in Washington struck down FCC rules ordering the Bells 
     to let rivals install and maintain their own gear.
       In August 1994, US Signal formally complained to Michigan 
     regulators. In February, regulators ordered Ameritech to file 
     new prices and terms for interconnection agreements.
       Ameritech did--five times in the succeeding eight months. 
     State officials rejected all of the proposals. A sixth 
     attempt, filed this month, is under review. 
     Representatives of the Michigan Public Service Commission 
     say Ameritech tried to set exorbitant prices, dictate how 
     rivals must set up their networks, and impose charges the 
     state doesn't allow.
       For example, Ameritech proposed charging rivals $20.37 a 
     month plus 8.2 cents a call for a customer who wanted to 
     leave Ameritech but hold on to the old phone number.
       Regulators ordered Ameritech to reduce that monthly fee to 
     about a dollar.
       After pressure from state officials, US Signal says 
     Ameritech made a new offer: Set up your network the way you 
     want, but we will lease you only 96 lines per switching 
     site--instead of the thousands per site that US Signal 
     wanted. Do it our way, Ameritech said, and you will get as 
     many lines as you want. ``We just couldn't possibly believe 
     they were serious,'' Mr. Clift says. ``But they were.''


                              Trial Basis

       This month, Ameritech backed down a bit. It dropped its 
     demand for extra fees for directory listings. The Bell also 
     agreed to lease all the lines US Signal wanted, regardless of 
     how US Signal set up the network. Just one catch: This will 
     be on only a six-month trial basis, leaving the Bell free to 
     rescind the deal next year.
       Two weeks ago, Ameritech filed a motion in the Michigan 
     court of appeals, challenging the authority of regulators and 
     legislators to force the Bell to open up its network. That 
     seems to fly in the face of the company's self-styled image 
     as a crusader for competition in the local phone business. 
     ``I don't really understand it,'' says Mat Dunaskiss, a state 
     senator who helped draft the open-market law. He calls the 
     Bell's action ``a step backward.''
       Ameritech says it filed because it felt regulators ``went 
     beyond their authority'' in ordering the Bell to provide 
     rivals with connections that Ameritech says are priced below 
     its costs. But Ameritech says it still supports ``full and 
     fair competition.''
       US Signal argues otherwise. One day earlier this month, the 
     tiny rival was besieged with complaints from dozens of 
     customers who kept getting rapid busy signals when they 
     dialed. Engineers checked the system and concluded that 
     Ameritech hadn't set up enough lines to handle the calls.
       Mr. Clift says Ameritech readily conceded its error and 
     took care of the problem, which Ameritech says also affected 
     its customers that day.
       Customers are beginning to blame US Signal for the foul-
     ups, even though the company has no control over such 
     matters. ``Customers say it's our fault, and let us know they 
     never had these problems with Ameritech,'' says Mr. Clift, 
     who worries some will make good on their threat to go back to 
     the Bell.
       ``They haven't left us yet,'' he says with a sigh. ``But 
     they're threatening.''

                          ____________________