Long-Distance Carriers Loss Might Be the RBOCs Gain

With the downfall of Worldcom Inc., choices among enterprise long-distance voice services are diminishing.

With the downfall of Worldcom Inc., choices among enterprise long- distance voice services are diminishing. But, ironically, it is local telephone companies, once targeted to face competition in their own markets from long-distance providers, that are moving to fill the void.

The move could stabilize a volatile market, but as local companies move closer to business-grade services, prices are likely to rise, industry insiders say.

In 1996, policy-makers touted the Telecommunications Act as a way to promote competition in local telephony by allowing companies such as WorldCom, AT&T Corp. and Sprint Corp. into the local market. Six years later, the policy appears to have backfired. Few users can turn to long-distance carriers for local service, but by this fall, users in almost half the states might be able to turn to their RBOCs (Regional Bell Operating Companies) for long-distance services.

The Federal Communications Commission has granted approval for RBOCs to provide long-distance offerings in 15 states and is scheduled to rule on another 12 states in September.

Thus far, local carriers, such as Verizon Communications Inc., SBC Communications Inc. and BellSouth Corp., have lured a considerable number of local subscribers to long-distance but have made scant inroads in the business market, primarily because they dont offer adequate data services bundled in.

"[The RBOCs] are only getting the customers that the [long-distance carriers] dont want," said Phil Jacobson, an analyst at Network Conceptions Inc., in Vienna, Va. "If youre looking for truly competitive services, the evidence shows so far that when it comes to heavier telecommunications users, Verizon and SBC have not been able to take any market share."

Despite their weak debut in long-distance, RBOCs in the long run are widely predicted to consolidate voice telephony. WorldComs recent financial debacle may accelerate that trend, according to analysts.

"What WorldCom is really trying to do is sell the MCI unit to an RBOC," said Jacobson, who spent 14 years at the former MCI Communications Corp. in finance and marketing. "Verizon is just lucky that this happened to WorldCom because now they could get it at a good price."

RBOC control of the long-distance business would likely bring stability to the volatile market, but it would also likely increase rates, analysts said.

"If you look at the carrier business around the world, it has been savaged," said Allan Tumolillo, an analyst at Probe Research Inc., in Cedar Knoll, N.J. "The RBOCs act differently than most other carriers: They buy slowly, they buy standardized equipment, they seek reliability and they seek price stability."