BusinessWeek: January 10, 2000

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Commentary: How Bell Atlantic Can Shake Up Long Distance

At last. More than three years after Congress passed the sweeping 1996 Telecommunications Act to deregulate phone markets, the first Bell has won approval to offer long-distance service. On Dec. 22, Bell Atlantic Corp. got the green light to sell long distance to individuals and businesses in New York State. It's a historic moment. The Baby Bells had been barred from long distance when they were created in the breakup of Ma Bell in 1984. The 1996 act allowed the Baby Bells into the $80 billion long-distance market, but only after they could prove that their local markets were open to competition. Now, state and federal regulators agree that the New York-based Bell has done so.

With victory in hand, Bell Atlantic CEO Ivan G. Seidenberg can make this a defining moment in the industry's history. For years, he argued that the Big Three long-distance players--AT&T, MCI WorldCom, and Sprint--were gouging customers, particularly ones who weren't big spenders. With Bell Atlantic expected to unveil its long-distance marketing plan on Jan. 4, Seidenberg says that "we plan to be aggressive and innovative, but we don't want to take value out of the market." That cryptic comment, insiders say, suggests that the plan may only appeal to low-spending customers and be only marginally better than existing plans.

Seidenberg can and should do more to prove that Bell Atlantic has evolved beyond its monopoly roots. Despite the nod by regulators, not everyone thinks Bell Atlantic has done a sufficient job of opening up its local markets. AT&T, which is pushing into local phone competition, has been trying to get the Federal Communications Commission to stay its decision. So has Robert E. Knowling Jr., CEO of broadband Net access provider Covad Communications Co. In a letter to FCC Chairman William E. Kennard protesting the approval, he wrote: "This is like the classroom bully getting rewarded."

Here's how Seidenberg can keep the critics at bay. For starters, he should give long distance away for a month to any New Yorker who wants it. Let them call as much as they want. Anywhere, no strings attached. Sure, it'll cost a bundle, but Seidenberg has said he wants to get 25% to 30% of the long-distance market in New York in five years. This could produce that result in five months. More important, regulators would applaud him, and customers would demand that Bells be allowed into long distance in other states. If he wants to play it safe, limit the giveaway to $100 of long distance--spending $100 million to get 1 million customers could be well worth it for a company with close to $3 billion in net income.

Or try this: Bell Atlantic already sends monthly phone bills to almost everybody in New York State. Next month, it should include a note letting customers know that they don't have to pay their local bill for a month or two if they sign up for long distance. It's at least as appealing as those $100 checks the long-distance companies send out. "Can you imagine?" says Wayne M. Perry, a former AT&T executive and now vice-chairman of NEXTLINK Communications Inc., a local-phone rival. "Everybody's going to take that offer. [AT&T Chairman] Mike Armstrong's wife is going to take that offer."

NET GAME. If these giant marketing giveaways are too rich for Bell Atlantic's blood--or for its shareholders'--how about some simpler, less costly ways to earn goodwill? To get the best rates from the Big Three, customers pay $5 a month or call only on nights and weekends. The plans may be cheap, but it's too hard to figure out savings. Offer round-the-clock low rates with no fees.

And don't forget about Internet access. Seidenberg should give away long distance for a month or two if customers sign up for Net access using his new digital subscriber lines. That would at last threaten the cable companies in broadband communications to the home.

The FCC, Congress--everybody--is watching. If Bell Atlantic wants to quiet the critics and fulfill the promise of the Telecom Act, now is the time to break the rules.

By Peter Elstrom
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