Mr. Armstrong, Tear Down These Walls

Mr. Armstrong, Tear Down These Walls

As published in the Wall Street Journal, March 9, 1999

At Bell Atlantic, we had hoped that our biggest battles with
AT&T would be in the marketplace, not in Washington--and
certainly not the editorial pages of The Wall Street Journal.
We thought that the new leadership in Basking Ridge, N.J.,
might realize that consumers are fed up with regulatory games
and are ready for real competition. But if an article that
appeared here by AT&T Chairman C. Michael Armstrong is any
indication, it seems the "new" AT&T is still making the same
old arguments--against competition, against open markets,
and against market forces prevailing over old regulatory
schemes.

AT&T claims it is merely trying to enlist American consumers
in an effort to reduce by $10 billion the access fees paid to
local telephone companies, which Mr. Armstrong labels a "tax
cut." Actually, AT&T is looking for a multi-billion-dollar windfall
for itself--hardly necessary since it's spending $48 billion to
buy TCI, $5 billion to acquire IBM's Global Network, and most
recently, $7 billion to buy a Canadian phone company,
MetroNet.

While bemoaning the cost of connecting to the local network,
AT&T neglects to explain that it could invest in its own
facilities and provide these access services itself, at any time,
in any market in the U.S. Finally, while demanding this
extraordinary corporate welfare, AT&T has the chutzpah to
continue to argue that long distance markets continue to
deserve special protection from federal regulators.

Let me try to sort through some of the misconceptions
regarding the access charge issue:

• Local companies don't set access charges--regulators do.
  The Federal Communications Commission sets the rates,
  taking into account a complex set of cost factors and public
  policy issues, including the need to keep local telephone
  rates low. We don't collect a penny more than the FCC
  allows us to.

• Access charges have, in fact, come down steadily in the
  1990s. Since 1991, Bell Atlantic and the other local
  companies have cut access fees by almost $12 billion.
  Access fees went down by more than $2 billion in 1998
  alone. But fully half of that wound up in the coffers of AT&T
  and the other long-distance companies, not consumers'
  pockets. If customers want a "tax cut," ask AT&T.

• Access services are a great value for the long-distance
  companies. Contrary to what you might think after listening
  to AT&T, access to the local telephone network isn't free.
  We provide reliable telephone service that reaches every
  customer in every city and town in which we operate. If
  access services really were as egregiously overpriced as
  AT&T claims, it would long ago have invested in its own
  network facilities to bypass our network--and access
  charges--altogether. Clearly, it has made a business
  decision not to.

• Our local networks are open; AT&T's won't be. It's
  particularly ironic that AT&T worries about whether local
  telephone companies are committed to opening our
  networks. We've spent a billion dollars and devoted
  thousands of employees and untold hours to opening our
  markets, in compliance with the Telecom Act of 1996. By
  contrast, AT&T's announced entry into the local market
  through TCI and Time Warner will operate on the closed,
  proprietary cable model, locking consumers forever into
  one long-distance company, one cable provider, one
  Internet service provider, and so on.

What's lost in the noise is the real consumer rip-off: The
average customer simply pays too much for long distance. Not
only that, but there's a very direct way to lower these rates:
Full competition from all players in the long-distance market--
including local telephone companies.

You don't have to take my word for this. Several years ago,
the judge who presided over Ma Bell's divestiture granted Bell
Atlantic permission to provide long distance in a few limited
areas in our territory. AT&T has found the competition in these
markets to be so great that it's gone to the FCC for authority
to lower its long distance rates along these corridors--
something it hasn't done anywhere else in the country.

Likewise, Bell Atlantic is excluded from competing fully in the
business and data markets. Despite AT&T's rhetoric about
"monopolies," we haven't had 98% of the large business
market since Ma Bell's heyday in the 1960s. When you total up
the business market for access, long distance, and data, Bell
Atlantic's market share is less than half that of AT&T's market
share in the long-distance market.

It's time to open high-speed data markets and encourage the
investment that will allow the Internet to reach more customers
at greater speeds. The market for Internet backbone service is
concentrated, with only a few firms controlling more than 60%
of the market. As a result, service suffers: Transmission
speeds at peak-demand periods have slowed to 40 kilobytes
per second or worse--all because the construction of Internet
backbone capacity hasn't kept up with demand.

Instead of whining about regulation, AT&T should eliminate the
barriers to competition in the long-distance and data markets.
Mr. Armstrong, tear down these walls.

Mr. Cullen is president and chief operating officer, Bell Atlantic
Corp.