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Squabbles Mar First Open-Market Experiment in Local Phone Service

December 28, 1995

ROCHESTER, N.Y. (AP) _ When he was laid off last January, one of the first things Ralph Casperson did to cut his expenses was switch to AT&T Corp. for local telephone service.

Merrill Benson also turned his back on the hometown phone monopoly. A retired executive, he never forgot those two long weeks Rochester Telephone took to repair his phone line after a fierce ice storm in 1991.

Although AT&T snapped up 7,000 residential customers here in early 1995 _ picking up 2 percent of the region’s 350,000 homes _ residents are no longer reaching out to the big long-distance carrier for one-stop phone shopping.

A year ago, Rochester became the first place in the nation to open its local phone market to competition. AT&T got a jump-start by offering a 10 percent cheaper monthly rate. By March, however, it had halted advertising.

The problem? After it leases the local-exchange phone lines controlled by Rochester Telephone and pays for marketing, AT&T says it simply cannot offer a competitive service and make a profit.

It wants New York regulators to return to the drawing board, and it looks like it’ll soon get its way.

``We have been stiff-armed like you wouldn’t believe,″ moaned David Jefferson, an AT&T regional vice president who thinks the ``Open Market Plan″ should be renamed the ``squeaky, barely cracked open door plan.″

With Rochester serving as a national telecommunications test market of sorts, the setbacks here cast a long shadow over the future of competition in America’s $90 billion-a-year local phone business, which Congress is now on the verge of forcing wide open.

The proposed overhaul of the nation’s telecommunications laws would allow local, long-distance and cable companies to get into each others’ businesses.

Rochester Telephone, which suggested the open market experiment so it could be freed from its corporate structure as a regulated utility, retains more than 95 percent of residential customers _ and fully intends to hold on to as many as it can.

``We’re trying to create an environment where customers have a choice, not an environment where we lose market share,″ said Rochester Telephone’s president, Tony Cassara. ``It might very well be, as other markets open up, some other pastures may be greener.″

In an economy still anchored by industrial titans like Eastman Kodak and Xerox, Rochesterians are usually very loyal to local businesses. And many seem reluctant to break the link with the 97-year-old local phone provider.

At $12.96 a month, Rochester Telephone’s basic rates are among the lowest in the state and ``it’s not a mismanaged company nor perceived that way by its users,″ said Elaine Altman, a telecommunications analyst at the investment firm Furman Selz Inc. in New York. ``So it won’t be picked off that easily.″

``If we’re in a community where everyone’s loyal, competition won’t exist,″ said Casperson, who was laid off after 24 years at Xerox Corp. ``I was downsized _ that helped change my perspective.″

He has since gotten a new job, but it pays about a third less. Saving money wherever he can, he’ll stick with AT&T until a better deal comes along.

While AT&T spins its wheels and cable operator Time Warner Inc. takes two years to build up its own coaxial cable TV-telephone network, analysts still expect the invaders to eventually grab a big chunk of the market.

Competition is already much more fierce in the business arena, drawing in entrants like Texas-based SBC Communications and MFS Communications of suburban Chicago. But while it expects its dominance to recede, Rochester Telephone is also counting on the entire telecommunications market to swell.

The point is not lost on Time Warner, which is aiming for control of up to 30 percent of the local phone market in five to 10 years.

``Plain old voice-grade phone service will be just one of many choices we’ll offer,″ said its president, Thomas Morrow, reeling off ``video telephony, work-at-home computer access, high-speed data transfer.″

``I think people will end up not wanting only the convenience of a single provider, which is certainly attractive, but also one that integrates the services,″ he said.

Time Warner, expanding neighborhood by neighborhood, has wired just 20 apartment buildings so far. It is wooing customers with three months of free cable TV.

AT&T, preferring not to spend heavily to build its own network, leases room on the local network at a 5 percent discount and then resells the telephone service. The discount should be more like 35-40 percent, the range AT&T gave MCI and Sprint in 1984 to get started in the long-distance market, Jefferson said.

Rochester Telephone, whose parent company changed its name to Frontier Corp. a year ago, counters that AT&T wants it too easy.

``It was never the intent that any company should be able to come in, simply reselling Rochester Telephone service and make a profit,″ Cassara said. Rather, state regulators want to encourage companies to offer more services and ``be more competitive in a total packaged way,″ he said.

The New York Public Service Commission is giving Rochester Telephone one month to respond to AT&T’s complaints. Failing a compromise, the commission will try to mediate.

``Moving from a monopoly to a competitive environment presents serious hurdles,″ said Lisa Rosenblum, the commission’s deputy chairman. ``There’s a chance we could increase the discount.″

The open market has already produced customer benefits: an 11 percent rate reduction and a rate freeze through 2001. But Benson, who described the ice storm as the ``frosting on the cake″ in his dealings with Rochester Telephone, is eager to see more.

``I’m sure no one was putting undue pressure on anybody when Rochester Tel was the only game in town,″ he said. ``I think a little competition is good for every business.″

End adv for Monday, Jan. 1

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