Baby Bells Face High Hurdles

The Justice Department will hold Bell telephone companies to a tougher test than a new law seems to call for before approving their entry into long-distance, the agency’s antitrust chief signaled Tuesday.

Even if the companies have met the terms of the Telecommunications Act of 1996, which allows telecommunications companies to get into each other’s businesses, that is not enough, Joel Klein told an antitrust conference. Klein is acting assistant attorney general of the department’s Antitrust Division.

The Federal Communications Commission is ultimately responsible for approving entry of the Bell companies into the long-distance markets in their own service territories, but the Telecommunications Act requires the FCC to give the Justice Department’s opinion “substantial weight.”

The law allows Bell companies to enter the long-distance business if they meet a 14-point checklist designed to ensure that they are allowing competitors to lease their facilities on fair terms. In addition, there must be competition in the Bell companies’ territory from another company that has its own facilities and the phone companies must set up separate long-distance subsidiaries.

“All of these are necessary, though not sufficient, to support entry,” Klein said. “By themselves they are not sufficiently dynamic to ensure that real competition can take place.”

“Our basic standard with respect to RBOC (regional Bell operating company) entry is that before an RBOC should be allowed to enter long-distance, it must be able to demonstrate that its market is truly open to competition,” Klein said. He said that was “different … than saying the market is already fully competitive.

“Our preference, though we realize this may not always occur, would be to see … business and residential entry into a local market,” Klein said. Customers who switch local phone companies should be able to do so quickly, he added, and the Bell companies should make repair calls to those customers in the same amount of time it takes to serve Bell company customers.

Klein said the Justice Department was not looking for competitors to achieve a certain market share before approving Bell entry into long-distance.

Klein noted that Bell company competitors could decide not to compete in local markets on a wide-scale basis because it does not make economic sense for them to do so or because they judge it would be to their advantage to keep Bell companies from competing in the long-distance market. Bell companies have complained that long-distance companies are likely to do that. States also could discourage entry into local markets, he added.

“We will pay careful attention to see whether any party, any party, is trying to game the system for its own parochial reasons,” Klein said. “If we think that’s what’s going on you can be assured that we will take appropriate action.”

He warned that once phone companies shed the heavy level of regulation they now endure, antitrust review will be more stringent: “Once regulation begins moving off center stage, we are prepared for the possibility that antitrust enforcement may be necessary to ensure full and fair competition.”