By Michael Martin
Network World, 12/24/01

With much-sought-after regulatory approvals in or close at hand, regional Bell operating companies are raising the ante in the long-distance game.

Traditional long-distance carriers AT&T, Sprint and WorldCom are pitted against the RBOCs - BellSouth, Qwest Communications, SBC Communications and Verizon - because they'll lose business as RBOCs win it. While RBOCs haven't gone head to head with long-distance carriers for big enterprise voice-and-data contracts yet, they have been successfully encroaching on the consumer market.

Early cases show RBOCs taking residential market share from competitors. One year after launching long-distance service in New York, for example, Verizon has already captured almost 20% of the residential market.

For their part, competitive local exchange carriers doggedly fight RBOC long-distance plans out of fear of losing open access to local Bell networks, says Maureen Flood, director of regulatory and state affairs for the Competitive Telecommunications Association (CompTel), a group representing a broad assortment of CLECs and interexchange carriers. In their local service areas, RBOCs are prohibited from offering long-distance voice and data services until they convince the Federal Communications Commission that they've opened their networks to local competitors. Section 271 of the Telecommunications Act of 1996 outlines this basic rule. The FCC is supposed to ensure that local competition persists after it grants an RBOC long-distance approval.

Skirmishes on the Hill

Much to CompTel's dismay, RBOC proponents on Capitol Hill are pleading the Bell case for easing the 271 approvals process. The best-known piece of legislation is the Tauzin-Dingell Bill, named for its co-sponsors Rep. Billy Tauzin (R-La.) and Rep. John Dingell (D-Mich.) In a nutshell, Tauzin-Dingell would let RBOCs into the long-distance data market without going through the entire 271 process. (They'd still have to prove open network access before being allowed to offer long-distance voice services.)

The bill's supporters say the legislation will induce RBOCs to roll out broadband services. The current rules, which force the RBOCs to offer competitors space on their broadband networks, don't give the RBOCs enough incentive to roll out broadband on a wide scale, they argue.

On the other hand, detractors say the bill would give the RBOCs strangleholds on DSL and discourage them from opening network access to competitors.

Another bill, introduced in the Senate earlier this year, is more to CompTel's liking. It aims to ensure open network access. This bill, sponsored by Sen. Ernest Hollings (D-S.C.), calls for the RBOCs to be split into wholesale and retail units.

As the bills wind their way through Congress, they renew the interest in the RBOC long-distance debate. Still, observers say it's unlikely that either bill will pass both houses.

Pushing into the enterprise

Wrangling on the Hill aside, this year has seen considerable activity on the RBOC long-distance front. Verizon, which until this year only offered long-distance in New York, has added Connecticut, Massachusetts and Pennsylvania to its roster, and plans to file for approval in New Jersey before year-end. SBC, which won long-distance approval in Texas in 1999, now also offers service in Kansas and Oklahoma, and seeks approval for Arkansas and Missouri. BellSouth is waiting for approval in Georgia and Louisiana, and Qwest expects to file for the go-ahead in at least one state before 2002.

With 20% residential uptake rates, aggressive RBOC moves into long-distance are no surprise. And it's no secret why the RBOCs are so successful: They have relationships with all local phone users, most of whom like the simplicity they get with one provider and one bill. 

Securing enterprise business will be trickier. For starters, many companies have offices across the U.S. Even if an RBOC manages to win long-distance approval in all states it currently serves, it's going to have trouble offering long-distance beyond that territory where it doesn't have a solid network infrastructure in place.

To date, Verizon and SBC have approached the enterprise market by bidding on small, in-state chunks of large enterprise accounts, says Stephen Shea, managing director for TechCaliber, a company that helps large companies put together telecom bids. So far they haven't had much success, he says. "Their offers for the big guys just aren't all that appealing. The large guys want to simplify their vendor management. They don't want one vendor, but they also don't want many. Until the RBOCs have national coverage, there's no way they can compete," he says. And they aren't offering any price breaks a customer can't get from another long-distance carrier, Shea adds.

RBOC salesforces can't compare, either, Shea says. "They're not on par with the interexchange carriers there. They don't have the relationships they need at the CIO level."

Still, even if they're not chomping at the bit to switch providers, enterprise customers are following the 271 approvals process with some interest.  

Doug Hogue, project manager of telecommunications for UniFirst, a uniform manufacturer with offices across the U.S., follows what's taking place but isn't convinced RBOC plans for enterprise business are far enough along to consider seriously. They don't necessarily have the customer service infrastructure in place to deal with large business customers, he says.

Plus, Hogue says, many companies are locked into long-term deals with their existing long-distance providers and couldn't switch any time soon, even if they wanted to. UniFirst, for example, gets its long-distance service per terms of a multiyear contract with its carrier.

A regional thrust

One business segment in which the RBOCs could have some success is the regional enterprise.

"Companies that are going to see the biggest impact will be those with their headquarters in an RBOC's region and all their branch offices within that same RBOC's 271 territory," says Thomas Nolle, president of consulting firm CIMI Corp. and Network World's monthly "Reality Check" columnist.

Right now, only Verizon is close to achieving any significant regional mass, with approval in New York and Pennsylvania, and pending approval in New Jersey, Nolle says. But by this time next year, all the RBOCs could have strong offerings for regional businesses. Corporations might see some savings in data pricing and get access to new services, Nolle says. Through RBOC long-distance, for example, a company with a corporate office in New York might be able to use an Ethernet link to send data to a data center across the Hudson River in New Jersey.

However, Nolle believes long-distance voice pricing is about as low as it can possibly go and more competition likely won't change prices much.

Ultimately, the RBOCs might move to squash the long-distance competition through acquisition - hence the continued rumors of acquisition talks between AT&T (or Sprint) and one RBOC or another. They'll need the networks and relationships that the existing long-distance carriers possess to become serious enterprise players.