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Baby Bells and the Trillions of the Future

THE "Baby Bells" decision issued (reluctantly) late last month by US District Judge Harold Greene may have seemed like an arcane regulatory matter. But pay attention: It will change the world we live in.The judge's ruling opened the information-services industry to the "Baby Bells," the local telephone operating companies broken off from "Ma Bell," the Bell system. The judge's ruling, long awaited but stayed pending appeal, could have a fundamental effect on the national communications infrastructure. Of course, people already get lots of information over the phone - computerized shopping services, electronic bulletin boards, etc. These services don't make lots of money, but they're out there for those who want them. A distinction has been made hitherto, though, between content and conduit. As common carriers, as regulated public utilities, the Baby Bells have been allowed to carry services but not to own them. The reason is that with data transfer technology reliant on telephone lines and modems, for now at least, information services are heavily dependent on the local phone company. If there's some sort of trouble on the lines, say, will the phone-company-owned restaurant information service be brought back up before the outside competition? And more important, with their steady income stream from basic phone service, wouldn't phone-company-owned services be able to beat the prices of outside competitive services? In short, won't the Baby Bells be able to take over a whole important sector of the economy? That's what the newspaper industry, for one, has feared if the medium is allowed to own the message. And that's what Judge Greene himself was concerned about; he ruled as he did only because an appeals court had virtually directed him to do so. Newspapers fear that information services could destroy traditional classified advertising. The Baby Bells, for their part, and many outside observers as well, argue that information flowing over fiber-optic telephone cables is the wave of the future. The telephone companies have the resources to cable the whole country with fiber optics. But will they have the incentive to do so if they can't buy into the information services? And if the phone companies don't do it, who will? If nobody does, America will be at a technical disadvantage within the world economy, the argument goes. "The telephone company issue," as it is known, has been quietly mulled over in anticipation of Judge Greene's ruling. But there has been action in Congress. The Senate has already passed a bill that would undo the exclusion of the Baby Bells from manufacturing. On the House side, the telecommunications subcommittee chaired by Rep. Edward Markey (D) of Massachusetts is working on legislation that would seek to protect consumers from abuses if the telephone companies get into information services. "We'll see a lot of debate on this," says a congressional aide. "What constitutes tough safeguards? How high must the firewall be?" Many in Congress and elsewhere are convinced that over-the-phone information services - and not just consumer services but business information services, services people use to make money - are here to stay. Japan is planning to be completely cabled with fiber optics by the year 2015. France is giving away its Minitel computerized telephone books: These represent investments in the telecommunications future. To compete globally the US must make similar investments. But here, as elsewhere in the economy, policymakers face a choice. Is the national interest served by encouraging a number of players to compete and thereby hold prices down within the national market? Or is the national interest served by encouraging cooperation to ensure the emergence of one mega-firm that would be assured of a position in the world market? Information flying over bits of fiberglass today takes the role once filled by steel coming out of the mills, or trains roaring across the rails. However the arcane questions of the Baby Bells are finally settled, they will affect the economic life of all of us. As our friend the House aide puts it, "There are trillions of future dollars at stake here."


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