To understand the frenzied competition for market share
in the information-based economy, imagine that all the emerging information
technologies are part of a giant pie. All the big media companies like
AT&T, the Baby Bells, MCI, the big newspapers, and the cable companies are
hungrily standing around the pie, knives at the ready. The only thing standing
between them and the pie are federal and state regulations, which limit how
many slices each competitor can get.
But those regulations are rapidly being rewritten.
Which means that companies offering cellular phone service, wireless cable,
satellite communications, telephone service, video on demand, and Internet
access suddenly have a chance to get a bigger slice. Thus, the competitors are
forming alliances, hiring lobbyists, buying ads, and doing all they can to
convince consumers and legislators that their carving method is superior.
Here in Texas, the food fight is nearly over, and San
Antonio-based Southwestern Bell Telephone (SWBT) has wolfed down most of the
pie all by itself. (SWBT is the main subsidiary of SBC Communications, Inc.,
which had $11.6 billion in revenues last year). The mammoth re-write of the
state’s telecommunications rules, known as HB 2128, is the first step toward
deregulation of the local phone service market. The bill has passed both houses
and is awaiting Governor George W. Bush’s signature.
For years, SWBT has had a near mo-nopoly on
local service. Under HB 2128, SWBT no longer has a monopoly, but it has been
freed from restrictions on prices. In addition, SWBT now owns all the phone
lines that consumers paid them to build over the past six or seven decades.
Thus, HB 2128 forces SWBT’s potential competitors to build their own lines, a
provision that potential competitors like AT&T and MCI say makes it too
expensive for them to compete in the local phone market. Wall Street analysts
say that HB 2128, which was written by Rep. Curtis Seidlits (D-Sherman), is
“extremely favorable” to SWBT.
While the bill protects SWBT’s slice of the pie for the
time being, they have lots of potential competitors and all of them want to eat
off each others’ plates. For instance, AT&T and MCI want to sell local
phone service. The Baby Bells, like SWBT and US West, want to sell movies,
information services, and long distance service. Cable companies like Cox
Communications and Time Warner, Inc. want to sell phone and data services. All
of them want to sell subscription services that could include Internet access
and electronic versions of magazines and newspapers.
The key, of course, is how you get all that
information into people’s homes, and for now,
we have a virtual standoff: SWBT retains a stranglehold
on local phone service, and they get ownership of seven and a half million
phone lines, but they can’t go into the info services business. The cable
companies and other information providers – newspapers, long distance
companies, and other media groups – have to use SWBT’s phone wires, or
massively expand their own cable and fiber optic systems.
The daily newspapers may have been SWBT’s
biggest foe during the early negotiations over HB 2128.
Led by Austin American-Statesman Publisher Roger Kintzel, the Texas
Daily Newspaper Association (TDNA) formed an alliance in the early days of the
legislative session with the long distance companies and consumer groups.
Together, they argued that SWBT was being allowed to retain its monopoly while
giving up very little. But the alliance didn’t last long. The TDNA wanted to
assure that it would not have to compete with SWBT in the information services
market. They wanted SWBT to be prevented from selling information services
until there was significant competition in the local phone market. Once that
provision was added to HB 2128, the TDNA decided it got what it needed out of
the bill and left consumer groups and long distance companies to fend for
themselves.
An analysis of HB 2128 by Texas Citizen Action says
that forcing competitors to build their own network of wires and switches would
be a losing proposition. “We don’t think any company is going to come in and
compete with Southwestern Bell,” says TCA director Tim Curtis. He calls HB 2128
“anti-consumer, anti-competitive, and anti-ratepayer.” Curtis points out that
when AT&T was broken up into the regional Bell companies in 1984, a court
required the company to allow competitors to use its long distance lines. But
that’s not going to happen in Texas unless Congress decides to deregulate the
market further.
The U.S. House and Senate are currently considering
legislation that may nullify much of HB 2128 and spawn a pie-eyed
scramble for market share. Earlier this week,
the House Commerce Committee heard testimony on a bill
by Rep. Thomas Bliley (R-VA) and Rep. Jack Fields (R-Houston) that will allow
the Baby Bells, cable operators, and long distance companies to invade each
others’ businesses. Called the Communications Act of 1995, the law will let the
Baby Bells offer long distance services and allow then to compete with
newspapers in the electronic publishing business. Long distance companies will
get greater access to the local phone market and local phone service providers
will be given the ability to set their own prices and provide cable TV
services.
Regardless of how federal or state regulations change,
SWBT and the other Baby Bells are starting the deregulation era from an
enviable position. SWBT controls
75% of the 10 million telephone lines in
Texas. Their next biggest competitor is GTE Southwest, which has about 1.4
million customers. The remaining customers are divided among 59 smaller
companies. Gary Samuels of Forbes magazine summed up the situation in an
article published in March, saying the new situation gives the old monopolies
“most of the freedom of unregulated, competitive enterprises, but little of the
competition. Meanwhile, the Bells have the best of both worlds.”
In other words, SWBT can have its pie and eat it, too.
– R.B.
This article appears in May 26 • 1995 and May 26 • 1995 (Cover).