CONVERGENCE WATCH RHCs join king-of-the-Internet battle >BY Telephony

As the Internet's influence grows, the Bell regional holding companies find themselves on an uphill climb to challenge established on-line service providers.

BellSouth.net is BellSouth's new business unit working to deploy the telco's Internet protocol networks across its nine-state region. A mid-summer launch is planned in several major markets for dedicated, secure IP links for business users, dialup services for business employees and a general access product with e-mail for residential and other customers, said John Robinson, president of BellSouth.net. The Internet unit will eventually host users' World Wide Web sites, he said.

Though some analysts question the Internet's stability as a business proposition, Robinson said BellSouth sees communication at the heart of this burgeoning network.

"The most popular application is e-mail," he said. "That is certainly communication, with a different end user device-the PC. The customers are communicating, and they're doing it through a network. In our mind, it's our core business and it's growing fast."

With that in mind, BellSouth is seeking to provide not only faster Internet connections, but quicker routes to useful information, Robinson said. The goal is to translate 30 minutes on the Web into two to three hours of saved time for consumers, so the telco intends to set up a navigational tool targeting local places of interest for World Wide Web users, he said. Local newspapers and other content providers are expected to help with the target sites.

The incumbents to beat are non-traditional service providers such as San Jose-based Netcom; PSI Networks, Herndon, Va.; and BBN Inc., Cambridge, Mass., said Mark Lonergan, an analyst with Heidrick and Struggles, Menlo Park, Calif.

AT&T and MCI, though lesser players, recently announced competing Internet access packages, including offers of five free hours of use each month.

GTE started providing Internet access to the special education market several years ago and launched access services for residents and businesses in the Dallas/Ft. Worth area on Dec. 15, said Fred Walters, manager of business and product development at GTE Intelligent Network Services. The service, called GTE.net, will be introduced in Florida in mid-June and will include residential and business customers nationwide this year.

U S West's !nterprise Networking Services is targeting the business market, where the access service has grossed $7.5 million in six months over eight LATAs. The telco expects to take six to eight months to hone its operational capabilities before it tackles the consumer market, said Steve Starliper, executive director of Internet product development.

U S West also lets its customers choose from a transport portfolio, so asymmetrical digital subscriber line may be the primary in-region choice while cable modems are the primary out-of-region transport mechanism, he said.

Nynex expects to have an Internet access product by the end of the year and Bell Atlantic is aiming for a mid-April announcement. Ameritech, which offers the Peapod electronic grocery shopping service, is taking a more cautious approach before expanding its residential Internet offering, a spokesman said. Pacific Bell Internet, which will roll out its consumer dialup access service in Los Angeles, Sacramento, San Francisco and San Diego later this month, is counting on its brand name and service reputation to differentiate it in the increasingly crowded marketplace, said Regina Wiedemann, vice president of sales and channel management for Pacific Bell Internet.

"New customers will expect the same quality of service they get from their phone line," she said. "We also see a large number joining because they've tried a second-tier Internet service provider and haven't gotten the quality they'd expected." Pacific Bell has been providing Internet service for dedicated business customers since September and has 5000 beta customers for its upcoming service. Another advantage is the telco's standing as a facilities-based carrier, Wiedemann said. "By owning the network, we manage the circuit installation and provide the transport. The end-to-end reliability and one-stop shopping is really a differentiator."

Despite the RHCs' high hopes, some analysts are skeptical.It's a logical argument for the RHCs to stress their T-1 backbones, Lonergan said. But the incumbent access providers can counter with an equally compelling argument that they can obtain access lines from 10 vendors in any market they choose, he said. "You could make the claim that the smartest thing for [either the RHCs or the IXCs] to do is to acquire an existing on-line service provider," Lonergan said, noting that the on-line incumbents already have worldwide Internet coverage and secure business relationships.

Jack Trout, president of Trout & Partners, a marketing strategy firm in Greenwich, Conn., was more pessimistic about the Internet access business' short-term prospects. "It's nothing but a feeding frenzy," he said. "It's one of those things you see a lot of in corporate America-everyone else is into it, so I've got to be."