Newspaper article St Louis Post-Dispatch (MO)

Ma Bell to Fight Kids for Local Phone Service

Newspaper article St Louis Post-Dispatch (MO)

Ma Bell to Fight Kids for Local Phone Service

Article excerpt

"Estranged mother seeks revenge on wayward children."

That could be a tabloid headline for Ma Bell's planned push into local telephone service through a new division of five regional groups.

It's invading the home turf of the Baby Bells, once part of the big happy AT&T family before court-ordered divestiture.

What's the attraction of local service?

Numbers tell the tale: The long-distance business generates $13 billion in cash flow, while regional operating companies provide $43 billion. Long-distance has operating margins of 13 percent, vs. regional operating margins of 22 percent. Furthermore, local service is a business 50 percent larger in size than long-distance.

So don't expect a "family" reunion anytime soon. It's everyone for himself in an all-out telecommunications competition.

"The investment world and media have totally underestimated the opportunity for competition in the local telephone business," declared Stuart Conrad, analyst with Deutsche Morgan Grenfell/C.J. Lawrence.snplsm

Of course, it still is illegal for AT&T to provide local service in many states, and in many rural areas it really doesn't make financial sense to do so anyway. Approval of new telecommunications legislation by Congress, if it adoes occur this session, would clearly define overall terms for letting local and long-distance competee. Yet however things shake out in Washington, long-distance carriers should benefit first because of competition-oriented state regulatory action.

"The movement in state regulation is to open up local markets to competition," explained Connie Luecke, analyst with Duff & Phelps. "Even without any federal legislation being passed, there will be a move by long-distance carriers into the local market . . . wbefore the regionals will be able to get into long distance."

Stocks of both long-distance and regional companies have had a good run this year, though prospects favor long-distance. …

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