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Ma Bell's offspring agitate to shake off some regulatory rules

The ``Baby Bells'' are pushing back federal restrictions governing competition in the telecommunications industry. The Federal Communications Commission will vote tomorrow on whether to continue requiring Bell operating companies (BOCs) to maintain separate subsidiaries if they wish to offer computer-link services.

Down the road, the FCC is also considering whether to allow new accounting rules designed to prevent the BOCs from subsidizing their computerized services.

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``What is being voted on is the issue of whether the cost of the structural-separation requirement outweighs the benefits in preventing potential anticompetitive behavior,'' says Susan O' Connell of the FCC.

At present, Pacific Telesis, USWest, Southwestern Bell, Ameritech, Bellsouth, Bell Atlantic, and NYNEX are forced to operate separate subsidiaries if they wish to offer nonregulated ``enhanced'' services. Under new rules, however, the FCC would make those distinctions.

``All we're really saying is that all of the unregulated businesses should be operated as unregulated businesses, and we [shareholders] take the risk and we take the rewards,'' says Delbert C. Staley, chairman of NYNEX.

Still, there is some question of just how effective new regulatory and accounting procedures will be at preventing subsidization.

``It's a cost accountant's nightmare,'' one federal official says. ``Finding subsidization gets to be like looking for a black cat in a dark room. There are so many costs fixed that it becomes a very subjective thing.''

Other experts say that while subsidization is not currently a huge problem, it is one reason the original court judgment forced a separation between regulated and unregulated phone service.

At the federal regulatory level, there is a shift away from keeping the two separate ``for efficiency's sake,'' according to the official.

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Yet, the BOCs still must wait for approval from US District Judge Harold H. Greene, who could be influenced by any FCC move to allow such ``information services.'' The thrust against deregulation can also be seen clearly:

In a key Justice Department investigation that is to be given President Reagan in January. It is looking at just where, and how, the regional Bells should be allowed to expand.

The Bells are supplying Justice Department investigators with information, but are also reportedly lobbying the Justice Department on a daily basis.

On Capitol Hill, where two bills being pushed hard by some of the Bells are pending before the House Telecommunications, Consumer Protection, and Finance Committee.

``The Bell companies have established widespread support for their plan to have the modified final judgment changed, but there is some question as to how deep that support is,'' says Dekkers Davidson of the Commerce Department's National Telecommunications Information Administration.

Officials in the executive branch and aides within the telecommunications subcommittee say that, while passage of legislation is not likely soon, it keeps pressure on federal agencies to move toward relaxing restrictions in four key areas:

Marketing information services -- including voice mail, voice storage, voice forwarding. This is the category the Bells are likely to be allowed to enter soon.

Making customer premise equipment -- including private branch exchange systems (PBXs), keysets, modems, and terminals. (This is a very competitive, low-margin business where many businesses are having trouble making money.)

For big business, the Bells could provide automatic routing along the least expensive long distance line. For small businesses that can't afford PBX, a regional phone company could build this ``least cost routing'' into its own system.

Making central office equipment -- that is, large buildings with sophisticated switching computers.

Marketing interexchange services -- that is, long-distance services that would compete with AT&T, MCI, and others.

Underlying the strong political push to loosen regulations is the concern that technology now enables big business to bypass the Bell systems' wires that interconnect offices and homes.

The Bells fear lucrative corporate business will leave their networks in droves.

Insurance, airlines, and stockbrokers are all information intensive and have enormous amounts of phone use. They would like to get around the charge for access provided by local wires.

An example frequently cited by the Bells as proof that bypass is eroding their system is Merrill Lynch's New York Teleport network established at the southern tip of Manhattan. It beams data off of antennas on Staten Island.

``We're finding evidence of bypass in some instances,'' says NTIA's Mr. Davidson. ``In theory you would expect a lot of bypass. But that isn't the case in reality.''

Still, ``you don't really wait until your horse is dead before you report back [to the government],'' says NYNEX chairman Staley.

The Bell operating companies argue that unfettering them would make them less vulnerable to competition.

But the effect on users of allowing the Bells to compete in long-distance (interexchange) services and in the manufacture of central office equipment and customer-premises equipment is pretty hazy, experts say.

``One can say that diversification, generally, will be at the expense of residential customers,'' says Eli M. Noam, professor of telecommunications at the Columbia University Business School.

Is such deregulation absolutely necessary to keep the Bells profitable and competitive?

``I have a feeling the holding companies haven't been restricted as much as they think they have,'' says Richard Vietor, a telecommunications specialist and professor at the Harvard Business School.

``It's only been two years since divestiture and they've done a lot. How much can you do in two years?''

First of two parts on the Bell companies.

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