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Regional Bells Want to Compete with AT&T in Manufacturing

June 3, 1991

WASHINGTON (AP) _ The regional Bell telephone companies are lobbying heavily for the right to compete with AT&T in manufacturing phone equipment, and supporters and opponents say the Senate appears ready to go along.

The seven ″Baby Bells″ argue that letting them join the telecommunications manufacturing market would increase competition and create new jobs for American workers.

But American Telephone & Telegraph insists the eventual effect would be to drive up local phone prices.

″The Bell companies are massing a pretty heavy lobbying blitz, so I think the bill will go forward,″ said Gene Kimmelman of the Consumer Federation of the America, which has joined AT&T in lobbying against the legislation.

″We’re trying our best to share our views with people″ in the Senate, said Mike Baudhuin, AT&T’s vice president for governmental affairs.

The debate over freeing the regionals from the ban on manufacturing has raged since the 1984 federal court decree that broke up the old Bell telephone system.

It restricted the regional Bell companies to the highly profitable local and intrastate long-distance telephone services, while manufacturing was given to AT&T and independent companies.

″I think the merits of the case are well known to the Senate,″ said Brent Regan, vice president for federal relations at Southwestern Bell. ″I don’t believe there is any remaining mystery about what the bill will do in the minds of the senators.″

The Senate plans to begin debating the bill this afternoon, and a vote is expected Tuesday.

Proponents and foes alike said the legislation will pass, but it is uncertain what form the final version will take.

″We’re hopeful a majority of senators will see the dangers to the public and at least put some protections in the bill for affordable phone service,″ Kimmelman said.

Baudhuin said he expects the bill ″to look quite differently than it does right now.″

Regan said simply that he hopes ″the Senate acts expeditiously and favorably.″

The regional Bells’ argument that they seek to create jobs has found allies among members of Congress who are upset that AT&T moved about 12,000 manufacturing jobs - mostly for home telephones - to Singapore.

Company officials said AT&T still has about 100,000 manufacturing-related jobs in the United States.

The Bush administration backs the bill, but without a provision that would restrict the regional Bells to domestic manufacturing.

Kimmelman and other consumer advocates argued that allowing the regional Bells to manufacture would drive up local phone prices because those companies would add an inflated cost of equipment purchased from their subsidiaries.

″It may drive local telephone rates through the roof,″ said Kimmelman, who added the bill contains ″absolutely no safeguards″ to keep down basic telephone rates.

″We just feel very strongly that if you put back the structure of the past, you’re going to create the markets of the past and the turmoil of the past,″ said AT&T’s Baudhuin.

But Regan called that claim a ″true phony.″

″Under today’s regulatory regime, the ability for a company to engage in that kind of illegal cross-subsidy is nil,″ he said.

A university professor who follows the industry said he opposed the Bell companies’ effort to convince Congress to overturn the court ruling.

″Philosophically, I believe American companies ought to be able to do whatever they want,″ said A. Michael Noll, a professor in the Annenberg School for Communication at the University of Southern California. ″But I don’t like legislation being used to overturn an antitrust decree. There’s other routes they should go.″

U.S. District Judge Harold H. Greene, who presided over the AT&T breakup and refused again in 1987 to let the regional Bell companies enter the manufacturing market, declined to give an opinion on the bill in a letter last week to Sen. Paul Simon, D-Ill.

However, the judge offered a lengthy summary of his 1987 decision, noting that it said removal of the manufacturing restriction might be followed by:

-A recurrence of anti-competitive conduct by the regional companies.

-The displacement of most independent telecommunications manufacturers.

-Less competition and a resulting reversal of recent price declines.

-A slowdown in product innovation.

-Domination of the domestic market by large foreign suppliers.

″In view of these conclusions, the court declared that no justification existed for removing the antitrust decree’s restriction on manufacturing,″ Greene said.

″Finally, I wish to advise you that no evidence has come to my attention in the last 3 1/2 years that would cast doubt on the findings and conclusions stated in the Sept. 10, 1987, opinion or call for their repudiation,″ he added.

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