The Federal Communications Commission yesterday gave Bell Atlantic Corp. permission to expand into the long-distance business in New York, marking the first time a former local telephone monopoly has won that right since the breakup of the Bell system more than 15 years ago.
"The Berlin Wall against competition has finally been demolished," FCC Chairman William E. Kennard said at a news conference. "Today's action delivers on one of the central promises of the Telecommunications Act [of 1996]--that is, local choice."
Other Baby Bells, including BellSouth Corp. and US West Inc., praised the decision and expressed hopes it would smooth the way for other entrants.
But AT&T Corp., Bell Atlantic's fiercest rival, quickly assailed the decision and vowed to challenge it in court. Under the telecommunications act, regional Bell phone companies are allowed to offer long-distance service in their home territories only after opening their local markets to competition. AT&T claims Bell Atlantic has gone far, but not far enough, in doing so.
"Today's decision shortchanges the people of New York," said AT&T General Counsel Jim Cicconi. "There are very real problems that make it more difficult and costly for new competitors to offer local service."
The FCC's approval comes in spite of concerns expressed by the Justice Department about Bell Atlantic's record in handing off local phone lines to rivals when customers request a different provider--particularly for DSL, a type of high-speed Internet access.
In seeking to mollify such critics, Bell Atlantic this month offered to set up a separate subsidiary to sell local lines to rival DSL providers. Yesterday, Kennard said he would not have backed Bell Atlantic's long-distance entry without that offer.
"Bell Atlantic's last-minute gambit was successful," said Jason D. Oxman, senior counsel for Covad Communications, a DSL provider, who lobbied against approval. "Bell Atlantic was able to give the commission the comfort it needed to approve a flawed application."
Other competitors sounded different notes. MCI WorldCom Inc. said it "looks forward to competing against Bell Atlantic" and said the decision strengthens its argument for its pending merger with Sprint Corp. The companies say their deal will allow them to compete against other supercarriers: AT&T and local companies such as Bell Atlantic and SBC Communications Inc., which plans to seek long-distance approval in Texas soon.
Even consumer advocates, who have previously accused Bell Atlantic of failing to open its local market, said the company has earned the right to sell long-distance service. They added, however, that state authorities and the FCC must guard against any regression by Bell Atlantic, imposing penalties if needed.
"There is more than enough authority here to make that market work," said Mark N. Cooper, research director at the Consumer Federation of America.
"We have opened up more choices and lower prices," added Gene Kimmelman, co-director of Consumers Union. He praised Bell Atlantic's announcement that it plans to kick off long-distance service in New York by focusing on residential customers, imposing no monthly charges and no minimum fees. Kimmelman has often criticized long-distance companies for charging such fees, accusing them of seeking to rid themselves of less affluent, lower-spending customers.
Bell Atlantic's chief executive and chairman, Ivan Seidenberg, said the company will launch long-distance service on Jan. 5 with the goal of capturing as much as 30 percent of New York's long-distance market over the next five years. Analysts called that target reasonable, if not conservative. The local company enjoys decided advantages: It already has a billing relationship with 6.6 million households. Adding long-distance service is neither expensive nor technically difficult.
"The calls are already flowing over their line," said Anna-Maria Kovacs, an analyst with Janney Montgomery Scott Inc. "Adding long-distance is a very simple physical operation."
Ever since the passage of the telecommunications act nearly four years ago, the issue of entry into long-distance service has generated political controversy. The FCC has rejected five previous applications from local companies, provoking action on Capitol Hill. Several current bills would make it easier for Bell companies to get into long-distance service.
Kennard rejected suggestions that political pressure influenced the FCC's decision. Bell Atlantic has worked for two years with the FCC and the New York Public Service Commission to open its markets. "This is a high bar," Kennard said.
But yesterday's decision did not immediately quell the political pressure. A spokesman for Rep. W.J. "Billy" Tauzin (R-La.), chairman of the House Commerce Committee's subcommittee on telecommunications, said he would continue pressing to enact a bill he has co-sponsored with Rep. John D. Dingell (D-Mich.) that would allow Bell companies to enter the long-distance market for computer data immediately, with no FCC approval.
Dingell welcomed Bell Atlantic's entry, but called it "one tiny piece" in the picture. He blasted the FCC for continuing to keep other Bell companies out of long-distance. "Chairman Kennard is functioning as a member of AT&T's law firm," Dingell said. "AT&T has been allowed to merge with the FCC."
"I don't get it," Kennard responded. "AT&T is saying that they are going to use all the resources at their disposal to block this decision, and John Dingell says I'm working for AT&T?"
CAPTION: FCC Chairman William E. Kennard announces the Bell Atlantic approval, saying, "The Berlin Wall against competition has finally been demolished."