AT&T Launches New Local Phone Initiative - InformationWeek

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AT&T Launches New Local Phone Initiative

It plans to test or launch service for consumers in 22 more states by year's end.

NEW YORK (AP) -- AT&T Corp. is broadening its assault on the local telephone market, the second long-distance provider to pounce on a federal order that fuels competition by forcing the local Bells to lease out their residential lines to rivals at attractive rates.

Already the biggest reseller of local service over Bell lines, AT&T said Monday it plans to test or launch the service for consumers in 22 more states by year's end. The company, which already provides local service to 3 million consumers in 13 states, had planned to enter only nine more states in 2003.

The move comes two weeks after long-distance rival Sprint Corp. began selling local service using Bell lines in parts of 36 states and Washington, D.C., that reach 80 percent of the nation's households, up from 5 percent beforehand.

The two companies are also targeting higher-spending business customers: AT&T said Monday it now provides local service to 1 million businesses using Bell lines, an increase of more than 25 percent for the year, and Sprint has said it plans to introduce local service for small businesses as well.

The announcements by AT&T and Sprint both cited an anxiously awaited report by the Federal Communications Commission released last month that provided strong reassurance the long-distance carriers would not lose their affordable access to the Bell lines any time soon.

The four regional Bells--Verizon Communications Inc., SBC Communications Inc., BellSouth Corp. and Qwest Communications International Inc.--have sued to block provisions of the FCC's order and requested a delay in next month's implementation of the new rules until the suit is resolved.

The Bells claim the state-regulated rates at which they are required to lease their lines to competitors are well below the cost they incur in operating and maintaining service over those lines. Rivals and the state regulators who set the rates contend that the Bells exaggerate their costs.

"The benefits customers realize in better, more valuable bundles of services will continue as long as the states make sure that fair rules and prices are protected and enforced," David Dorman, AT&T's chairman and chief executive, said in a statement Monday.

But in a petition filed with the FCC last week, the Bells said they "lose thousands of lines every day to the purely synthetic competition" spawned by the commission's rules, which they said will cause them "massive, immediate, and irreparable harm."

While a clear-cut answer on whether the Bells are compensated fairly for their lines remains maddeningly elusive, the FCC has undoubtedly succeeded in its goal of fostering competition for consumers, who until recently had only one choice for buying local phone service.

By the end of June, even before the latest ruling, about 13 million consumers were getting their local phone service over a Bell wire that was rebranded under a rival's name, an increase of more than 25 percent since the start of the year. AT&T and MCI account for slightly more than half that total, with the balance served by Sprint and an assortment of smaller providers.

The increase in local phone customers comes as AT&T, MCI, and Sprint are losing millions of their core long-distance subscribers to the Bells, who have won regulatory clearance to offer that service in a growing number of states.

To stem their losses while winning new business, both the Bells and their rivals have focused on package deals that bundle local and long distance--and sometimes wireless and Internet service--on the same bill, hopeful they can lock in customers with lure of one-stop shopping and related discounts.

Sprint, for example, is offering unlimited local, long-distance and cellular calling for $170 to $190 per month, depending on the state.

AT&T, which says 19 percent of its consumer revenue is now derived from bundled services, sells unlimited local and long distance for $55 or $60 per month, depending on what it pays to use the Bell lines in any particular state. In two markets, AT&T is also testing a package that includes cellular service in tandem with former subsidiary AT&T Wireless.

To fight back, the Bells are offering packages that also include high-speed Internet connections via DSL, a service that relies on the same copper phone line as telephone calls.

However, as a result of the FCC policy, the Bells may encounter increased competition in this arena as well, because once a non-Bell company leases a residential line to provide local phone service, it also holds the right to provide DSL over that line.

With the added certainty provided by the FCC's policy, companies including MCI and AT&T have partnered with Covad Communications Group Inc., a company that has the equipment necessary to transmit DSL signals over lines already installed at the Bells' local network hubs.

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