-- Stalemate: Pac Bell, rivals fail to determine how to split up state's $6 billion local market.

By David Bank

Mercury News Staff Writer

A noisy and expensive lobbying campaign is about to begin to influence the rules for competition in California's $6 billion local telephone market.

Three months of secret negotiations between Pacific Bell and its would-be competitors ended in failure Friday, leaving the state Public Utilities Commission to determine how to end what has become an unnatural monopoly in local service.

MCI Communications Corp., which a decade ago led the fight to break up AT&T Corp., said it planned to unleash an advertising campaign attacking Pacific Bell's monopoly practices.

``That's the way to win,'' said Jim Lewis, MCI's top regulatory official. ``These are complicated issues, and we're going to help policy-makers sort through them.''

The key to new technology

Creating competition in the local telephone market is considered a key to unleashing the power of new technology to create new services and lower prices for consumers. Long-distance companies, cable television operators and so-called competitive access providers are eager to break into the market.

But before lifting the current ban on such competition, the PUC must decide a host of regulatory and technical issues. For example, how can new entrants connect to the current telephone network to provide customers with service? How much should competitors pay for such connections? Will consumers have to change telephone numbers if they change providers? Should competitors be regulated in the same way as the incumbent provider?

``The technology has moved so fast, it does not appear possible to maintain telephone service as a monopoly service,'' said Helen Mickiewicz, an attorney with the PUC's Division of Ratepayer Advocates. ``But just establishing the rules doesn't mean you're going to get competition unless people can connect their networks.''

The schedule

The commission in December gave the interested parties 90 days to reach an accord on their own. With the failure to reach an agreement, the commission is scheduled to issue own interim rules on April 26, which would go into effect in June. The commission has set a goal of January 1997 for full local competition.

With two vacancies on the board, however, a unanimous vote of the three remaining members will be required to adopt the regulations. They will have no lack of advice.

``The solution must put consumers first, not competitors,'' said John Gueldner, Pacific Bell's vice president of regulatory affairs. ``The best solution is one which opens all markets to all competitors at the same time operating under the same rules.''

Consumer advocates who attended the negotiations said that formula for competition gives monopolies such as Pacific Bell an unfair advantage because of its control over much of the state's telephone infrastructure. They said too-fast deregulation could crush competition before it begins.

``The danger is that we get unregulated monopolies,'' said Thomas Long, an attorney with Toward Utility Rate Normalization in San Francisco. ``That would be a disaster for California customers. (The monopolies) would have the same ability to charge gouging prices, but there wouldn't be any regulations preventing them from using that power.''

Citing a signed confidentiality agreement, participants in the negotiations refused to discuss the substance of the 20 closed negotiating sessions held at a state office building and at Pacific Bell's headquarters. The commission had ordered the participants to list areas of agreement and disagreement and make recommendations for how to proceed, but the report filed Friday contained no such details.

``I believe we have not complied with the order,'' Mickiewicz said. ``We were asked to provide specific information about areas of agreement and disagreement, and we declined to do that.''

Published 4/01/95 in the San Jose Mercury News.

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