TELECOMMUNICATIONS
     

artwork by Andre Lucero

Virginia isn't trying to be difficult; it's just a unique case, says commission spokesman Ken Schrad. "We're one of only two states in which both companies have a major presence." The other is Pennsylvania, which is holding statewide hearings on the deal. In government-speak, Virginia commissioners dismissed the petition "without prejudice." It wasn't a no, but a qualified maybe. The sticking point was concern about competition. The agency must be convinced that the move won't hurt consumers on price or service. "We have to make sure customers of GTE are no worse off than they are today under their existing structure," Schrad says.

These Virginia giants expect to convince regulators that their plan is a good one. That signal came across in the most recent filings, which promise to freeze basic rates for Bell Atlantic's Virginia customers through 2003. GTE will move up the timetable on offering such services as caller ID and automatic return call, which some residents in Amherst, Augusta and Buchanan counties can't access. And GTE will cut rates in Southwest Virginia, a move that could save single-line business customers from $72 to $132 a year, according to the company. Big customers would save even more.

The deal also would expand local calling areas. Bell Atlantic's Paul Miller says that when Bell Atlantic and GTE service areas are adjacent, users won't have to pay long-distance or extended-area calling charges. GTE customers in Manassas and Prince William County, for instance, would be able to make flat-rate local calls to Arlington, Alexandria and Fairfax. "With this we would get rid of 367 long-distance routes," he says. The companies say that the move will cost them $22 million to $23 million in annual revenue.

The companies also dangled the promise of investing at least $1.75 billion over three years in the commonwealth's telecommunications infrastructure if the deal is approved.

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The latest petition is much more detailed, but some telecom players still don't like it. In filings with the commission, MCI WorldCom argued that the plan "will damage the fledgling competitive market before it has a chance to become fully developed."

If the merger plan wins state approval, the combined company would have 3.5 million Virginia customers and control 89 percent of the commonwealth's telephone lines. MCI WorldCom is both a customer and a competitor: It buys access services in order to provide long distance, but it's a competitor in the local-exchange and Internet arenas through such subsidiaries as MFS and UUNet.

MCI WorldCom attorneys argue that promises like the rate freeze don't translate into competitiveness. "If a competitive marketplace were thriving, a rate cap would be irrelevant. ... The proposed extension of a rate cap insures that, should the competitive marketplace fail to take root, rate payers in the commonwealth will continue to pay excessive rates, allowing Bell Atlantic to earn a 28.63 percent annual rate of return in Virginia."

MCI WorldCom wants the state to reject the merger or adopt certain conditions: Having GTE refund excessive earnings, enforcing performance standards, standardizing connection agreements and restricting GTE's long-distance marketing in the commonwealth.

MCI WorldCom spokesman Joe Paluska says his company opposed the first plan and intends to let the State Corporation Commission know that the current petition also won't work.

The Justice Department has approved the deal on the condition that the companies sell off overlapping wireless properties. The deal still needs to pass muster with the Federal Communications Commission, and the State Corporation Commission should reach a decision by the end of November.

Bell Atlantic expects to prevail and suggests its opponents are anticompetitive. "It's to their advantage to keep us out of long distance as long as possible," says spokesman Michel Daley. "The interesting thing is, the larger companies, particularly AT&T and MCI WorldCom, are on a soapbox trying to convey to anyone who will listen that we should not be involved in long distance because ... local [service] isn't competitive enough." Smaller companies, he notes, are already in the game.

A combined Bell Atlantic and GTE may be a behemoth, but other local exchange providers are gearing up. The State Corporation Commission has received about 90 applications from companies that want to provide local service, and it has approved about two-thirds of those.

But Schrad notes that they won't necessarily offer what Bell Atlantic and GTE do. They may only sell high-speed Internet connections, for example, or only set up communications for businesses, not residential customers. And while there are many applications, only a handful actually are providing local service -- among them are Jones Cable, Net 2000, Cox Cable, KMC Telecom and Cavalier Telephone, which rolled out its services last month.

"We're certainly not intimidated by the incumbent monopoly," says KMC spokesman Jim Crawford. "But we do wish they devoted more time to opening their markets. ... The urge to merge seems to take precedence over the urge to compete."

His company just started offering Hampton Roads and Roanoke customers high-speed digital subscriber line service -- fast Internet service over regular, copper telephone lines. "Here we are, a small company barely 4 years old, able to offer DSL service. I can't get that through Bell Atlantic. ... I guess we're happy because we're doing and they're not," he says, "but it makes you wonder."

Kathleen F. Phalen contributed to this report.

© JULY 1999, Media General Business Publications Inc.,
publisher of Virginia Business Magazine