RBOCs on long-distance trek

The regional Bell operating companies continue to ring up long-distance victories with federal and state regulatory bodies. As a result, large businesses might begin to benefit from the RBOC successes as soon as this summer.

However, the regulatory picture still remains cloudy and it could take a lot longer for the RBOCs to make major inroads into the enterprise long-distance market.

Two weeks ago, BellSouth became the latest RBOC to win permission from the Federal Communications Commission to offer long-distance services in states where it is the dominant local carrier when the FCC approved BellSouth's applications for Louisiana and Georgia. The states represent BellSouth's first long-distance wins.

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Under the Telecommunications Act of 1996, RBOCs are not allowed to offer long-distance voice and data services in states where they are the dominant local voice providers until the RBOCs prove that they have opened their networks to competitors.

So far, Verizon leads the four RBOCs, which also include SBC Communications and Qwest, with six long-distance approvals. SBC has five. SBC and Verizon have sold long-distance services for more than a year, but so far they have concentrated on the consumer and small-business markets.

Qwest, which said early in 2001 that it would file for FCC approval for its first state by the summer of that year, has yet to file for permission to sell long-distance services in any of its 14 states.

In the meantime, however, Qwest is being investigated by five states for allegedly cutting favorable deals with certain competitors in return for the competitors agreeing to not obstruct Qwest's long-distance applications. These deals would run counter to the telecom act.

Verizon has been the RBOC with the most success in gaining a long-distance foothold. If Verizon gets approval to offer long-distance services in New Jersey, which the FCC has to decide by the end of next month, the RBOC could leap immediately into the large-business long-distance market, says Tom Nolle, president of consultancy CIMI Corp. and a Network World columnist.

"With the acquisition of New Jersey [long-distance], Verizon acquires the Northeast corridor enterprise market," Nolle says.

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Long-distance landscape
The four regional Bell operating companies are making progress slowly in their battle to provide long-distance service.
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Verizon's local territory accounts for between 45% and 48% of the large corporate headquarters in the U.S., he adds. If Verizon sells long-distance services when it gets approval for New Jersey, it also could push SBC into the long-distance market in the Northeast. That could be the case because SBC would be hesitant to give Verizon a head start, Nolle says.

Hank Levine, a partner in Levine, Blaszak, Block and Boothby, a firm specializing in telecom contract negotiations, isn't so sure the RBOCs will be quick to break into the large-business long-distance market. The reason is that large companies typically have offices throughout the U.S. While an RBOC might be able to offer these potential customers long-distance services in most states, large companies would be unlikely to consider an RBOC if they had to go to the trouble of cutting side deals for states where the RBOC didn't have permission to offer long-distance, Levine says.

In the meantime, the RBOCs could serve regional companies that had offices only in certain states where the RBOCs had long-distance approval.

However, Levine says the RBOCs so far have focused on the consumer and small-business long-distance markets. There are two reasons why these targets might be more appealing, at least in the short term. The first is that the RBOCs already have good brand recognition with the consumer and small-business markets. The second is that they might not yet be prepared to deal with the added strain of serving large businesses and their very particular support requirements.

While Verizon and SBC might appear to be close to getting long-distance approval for most of their states, Levine believes it will be at least another year to 18 months before either provider has approval for all of its local territory. The final states may prove more difficult to win over than the early ones, he notes.

"A lot of these companies have one or two states that really hate them," Levine says. For instance, he says, SBC could have some trouble dealing with California, a former Pacific Bell territory, and with the former Ameritech states, including Illinois.

Whether the RBOCs will break into the large-business market through building their own salesforce, or acquiring an interexchange carrier (IXC), is still up in the air.

Any IXC acquisition by an RBOC would require the RBOC to cut loose all the IXC's long-distance customers headquartered in states where the RBOC did not have long-distance approval. It's unlikely there would be any activity until an RBOC has obtained long-distance approval in all its local states.

For example, Nolle says, BellSouth and AT&T would likely want to merge their operations. But because BellSouth still needs long-distance approval in five states, that's not likely to happen any time soon.

Also, with the layoffs some IXCs have made and the large pool of unemployed competitive local exchange carrier staff, Levine says, there's a lot of sales and support talent the RBOCs can pick up to staff their own large-business long-distance operations.

Once the RBOCs decide to enter the large-business long-distance market, it could lower prices beyond their already low levels, Levine says. Like any new entrants, RBOCs will likely have to lure customers through favorable deals, such as offering two-cent long-distance minutes instead of three-cent minutes.