Is the grass really greener?

As the telecom industry debates the pro- or anti-competitive nature of recently proposed partnerships and acquisitions, it's been interesting to note how often one type of carrier has used terms such as "unfair advantage" to describe its potential competitors, while those competitors have talked about how their own "hands are tied."

SBC's and Ameritech's plans to merge, for example, brought home just how important the local loop is to the incumbent carriers that control it-and what a sore point it is for new companies wanting to offer local service. Although many new players are constructing nationwide fiber networks and metropolitan rings, it could be decades before anyone gets around to building an alternative connection all the way to every customer.

Until then, competitors will have to lease loops from the incumbents. To the extent that the incumbent-with approval of state regulators-can control the price of that loop, it can control how much competition it gets.

But there's another reason the local loop is so important. That loop is a huge source of revenue for the incumbent carrier, collected in the form of access charges that long-distance carriers must pay for the privilege of using the loop to originate or terminate long-distance calls.

If the SBC/Ameritech deal goes through, one of its key advantages may not come clear until that carrier is allowed into the long-distance market. At that time, it, too, will be expected to pay access charges to other carriers-on the terminating end. It won't have to pay on the originating end because it will control the loop and essentially, access charge payments would be made to itself. To the extent that the person receiving the call is in SBC/Ameritech's own territory, that company also won't have to pay on the terminating end.

Information about traffic patterns is closely guarded, but many sources have told me that Ameritech customers, in particular, generate a high percentage of in-region long-distance traffic. Apparently, Midwesterners tend to call other parts of the Midwest more than either coast. Even without the SBC merger, Ameritech would have controlled both ends of many long-distance calls. After the merger, the combined company will control both ends of those calls and any in-region calls in SBC's territory and any calls between Ameritech's and SBC's territories. I suspect the net revenue effect will be very much in the merged company's favor.

On other fronts, though, the incumbent local carriers, particularly the Bell regional holding companies, may be at a competitive disadvantage. Recognizing that data soon will overtake voice traffic, many potential competitors are designing high-speed data networks on which voice will ride for free. Meanwhile, the RHCs have had to sit on the sidelines waiting for an opportunity to get into the game.

What has kept them out are regulations that prevent them from carrying interLATA traffic within their own region. Not surprisingly, RHCs are using a variety of tactics to try to find a way to play in this market. Several have asked for regulatory relief, and Bell Atlantic has gone so far as to start building an in-region data network through a separate subsidiary, hoping that by the time it's ready, the company will be allowed to offer long-distance service (see story on page 6).

U S West and Ameritech, with the cooperation of competitive local exchange carrier Intermedia Communications, have opted for a lower-profile method of getting into the long-distance data market. Using proprietary network management software, Intermedia offers its RHC customers a seamless connection that provides the forbidden missing link between in-region LATAs.

A secondary benefit is that Intermedia's carrier customers can use Intermedia's data points of presence as their own and vice versa. That's good for customers of both carriers because it increases the likelihood that customers will have a POP nearby and reduces the dollars customers have to spend on what Intermedia President, Chairman and CEO David C. Ruberg calls "tail circuits" to the POP.

Despite all the talk of an "uneven playing field," I'm not convinced that any particular type of carrier has an unfair advantage or disadvantage. A carrier's ability to make the most of its own circumstances-and not its category-will determine its success.