The outlook for local telephone competition dimmed last week as AT&T threatened to retreat from the field and the industrys chief regulator signaled what could be the onset of a new Darwinian struggle among the survivors.
Marking the fifth anniversary of the 1996 Telecommunications Act, designed to create local phone competition, AT&T Chairman C. Michael Armstrong and Federal Communications Commission Chairman Michael Powell offered contrasting views on the need for government intervention.
Saying his company cannot compete in local phone service unless the power of the regional Bells is reined in, Armstrong demanded lower access fees and a possible breakup of the Bells into separate wholesale and retail units.
"If nothing changes, we will be forced to shut down our local service business in New York and Texas," Armstrong said. "We lose money on every customer we win."
But Powell indicated he will not be rushing to the aid of AT&T anytime soon, detailing a deregulatory attitude toward the Bells and cable companies that could mean death to struggling competitive local carriers that are less well-financed than AT&T.
"I do not believe deregulation is a dessert you serve after youve eaten your vegetables," Powell said. "Its not a reward for competition, its an incentive for competition."
While AT&Ts circumstances are not as dire as the upstart local carriers, its chairman appears to be under siege as he attempts to undo the combination of cable, Internet, wireless, long-distance and local phone companies he cobbled together over the last three years.
In a telephone meeting of 150 analysts and institutional investors, representing 680 million shares, or a 20 percent stake, in AT&T, the AFL-CIO and the Communications Workers of America pitched its plan to prevent the breakup of AT&T into four companies. While calling for new management, the organizers of the event said they will lobby the AT&T board to preserve the company and continue the original bundling strategy.
Among the obstacles to the breakup is the fact that AT&T would need to win new franchise agreements for its broadband operations from thousands of local governments, said Joseph Van Eaton, an attorney.
Meanwhile, rival WorldCom hopes to distance itself from declining long-distance revenue. Its fourth-quarter profits fell 44 percent, as weakness in long-distance offset higher data, Internet and international sales.