Pacific Telephone prepares for a future without 'Ma Bell'
For years, Pacific Telephone & Telegraph has been known as ''Ma Bell's stepchild.'' But early next year, Pacific Telephone becomes an adult, when the American Telephone & Telegraph (AT&T) antitrust divestiture takes place.
This sudden shift - from a being a stepchild, dependent on AT&T for a yearly multibillion-dollar subsidy to keep its local rates down, to an independent phone company - will bring about some major changes in the way California's largest private employer does business. In fact, according to Arthur C. Latno Jr., executive vice-president of Pacific Telephone, even the name of the holding company might change.
The transitions at Pacific Telephone are not unlike those affecting the other AT&T subsidiaries being spun off. However, because of the size of Pacific Telephone, which serves 10 million customers, it will be one of the most closely watched in the nation.
There is no doubt the changes will be felt by nearly all the people who put phones to their ears in California. Although it is too early to predict what will happen to telephone rates, Mr. Latno says he believes rates will be under pressure because of the way Pacific Telephone's revenue mix will change.
''Clearly there will be upward pressures,'' Mr. Latno says, ''particularly on basic rates. Usage charges possibly will decrease.''
To understand how rates could change, an observer must look at how Pacific Telephone derives its revenues.
Today Pacific gets $900 million from nonlocal intrastate tolls (within the same state), and $1.3 billion from interstate tolls (long distance calls between states). This $2.2 billion in revenues will disappear - snapped up by the new Ma Bell, or its Johnny-come-lately competition.
To replace the money, Pacific Telephone will charge an access fee to AT&T, MCI, GTE's Sprint and other carriers who want to compete in the long distance market.
Pacific will harvest $250 million of the revenues annually derived from the Yellow Pages as well as $150 million from additional phone services, such as call forwarding. However, Mr. Latno says, some $700 million in local revenues are in doubt, because it is still unknown whether Pacific will face competition in its local phone networks.
Some of the smaller, more aggressive carriers, such as MCI and Sprint, are asking for the right to compete against Pacific in the nine distinct areas that have been defined as ''local'' service areas in the state. Since Pacific Telephone derives 30 percent of its business revenues from 1 percent of its business locations in these areas, it is concerned MCI and others will ''skim the cream'' off the top.
''MCI would like to take San Francisco and San Jose and leave us with the remote areas,'' Mr. Latno says. ''If I was them, I'd want to do the same thing.'' He adds that, ''If we have competition, we will have to reprice closer to cost.'' The cost of providing the basic monthly ''dial tone'' service, he says, would be closer to $15, instead of the current $7, if Pacific was not assured of $700 million in local revenues.
MCI and others, however, stated in recent testimony before the state Public Utility Commission (PUC) that price competition would be good for the California consumer.
Through competition, says Robert Jackson, special assistant to MCI's president, V. Orville Wright, Pacific will be forced to cut costs. ''They can become more efficient,'' he adds. ''To think otherwise is 'monopoly think.' ''
The state PUC has yet to rule on this issue. However, Paul Popenoe, chief of the communications divison of the rates branch, says the PUC staff has viewed local competition as ''nonviable,'' since the PUC staff does not believe there should be competition for local service. Competition would hinder the PUC's ability to fix rates in the local areas, he says.
On the whole though, Mr. Popenoe says, the AT&T divestiture should make it easier to regulate Pacific Telephone.
''Pacific Telephone will have to rise or fall on its own,'' says the regulator, adding, ''I've always had doubts about the advantages for Pacific of AT&T's huge holding-company structure.'' For example, he says: ''Western Electric is substantially behind the competition in terms of new technology. Rohm, Northern Telecom, and others have outstripped the Bell System.''
In the future, Mr. Latno says, Pacific can buy its central terminal equipment from nearly any manufacturer. (Home phones will be supplied by AT&T or its competition.) This will be a new process for Pacific, which must develop its own purchasing department.
In fact, a main concern of Wall Street analysts is whether Pacific will have the qualified manpower to thrive on its own. ''There is the perception that many of the talented people have been shifted over to American Bell (AT&T's unregulated subsidiary),''comments one securities analyst.
Charles Wohlstetter, the chairman of Continental Telephone Corporation, considered by some analysts to be a leader in telecommunications, says: ''We have worked hard to develop a culture of people who could spend $2 million and not have to call the home office for permission. We have tried to develop an adventurous tone here which is just the reverse of AT&T, where if you want a decision, you have to go through a hierarchy of maybe five levels. . . . In this business, if you make a mistake, you can recover, but you can't recover from not making a decision.''
Mr. Latno agrees that this is company weakness. ''We must go out and get the people,'' he says, ''who can help us to develop in the areas we are weakest.''
One of these areas will be in marketing. In the past, says Charles Wohlstetter, the biggest problem for local phone companies was someone ''who left his receiver off the hook.'' Thus, he says, ''They didn't develop any hotshot marketers,'' which he concedes was not all bad. ''There was no sheer outrageous waste of assets.'' Now, however, the game has changed, he says.
Cable television, for example, can be used for communications. ''If the phone companies don't wake up to this competition,'' he says, ''they will get hit over the head with it.''