4 Years After Telecom Act, Impact on Prices Mixed

Have you noticed how the data bills from your regional Bell operating company have dropped since the federal Telecommunications Act of 1996 kicked in nearly four years ago?

Maybe not. But if you have, you might want to hold off on crediting the law, which was intended to promote competition that would drive down RBOC telecom prices.

Customers, analysts and the RBOCs say data prices have not declined that much and when they have, other factors have prompted the changes. In particular, they point to competition from carriers that would have entered the market anyway, plus new technologies that support similar services for less.

"The telecom act didn't open floodgates as envisioned," says Karl Garland, an analyst at Current Analysis in Sterling, Virginia.

In fact, some users say they have seen no data price improvement from the RBOCs since the telecom act. "We have 16 offices in pretty much every RBOC territory, and we haven't seen any drop in these rates," says Ken Lund, IT manager for Allen Lund Co., a transportation broker in La Canada, California. His firm uses T-1s to connect voice and data networks at the company's sites.

Others see some positive effects of the law. Rich Glasberg, manager of data services for the Massachusetts state government, says he has noticed one improvement: Bell Atlantic has dropped its mileage charge on frame relay lines.

"So I guess I would say the telecom act wasn't an altogether bad thing," Glasberg says.

So far, most RBOCs have been unable to win the one positive incentive the telecom act offers them to reduce prices: the right to sell long-distance service out of their home territories. The lone exception is Bell Atlantic, which last month won the right to sell long-distance in New York. Bell Atlantic has yet to announce any price changes.

RBOCs are reluctant to change their prices because it means changing their tariffs, or the legal postings of what services cost, says Melanie Posey, an analyst with International Data Corp. (IDC) in Framingham, Massachusetts. It is a complicated process that has sweeping results, so they try to avoid it.

"Rather than filing a new tariff, it's easier for them to play around on the margins," she says.

By that she means offering unadvertised discounts based on the total amounts customers spend on services or the length of their contracts. So while the rate is officially the same, discounts get bigger for those organizations that spend lots of money or lock into services for a long time.

And neither the RBOCs nor their challengers, the competitive local exchange carriers (CLEC), want to cut prices so much that their profit margins waste away.

"CLECs aren't interested in starting a price war for data," Posey says. "If everybody cuts their prices, what's in it for them in the long run?"

The likely place for a price war is customer services, such as dial-up Internet access and phone service, she adds.

"If you reduce services to commodities, anyone can beat an RBOC and sell the service to you for 20 percent cheaper. That's easy," says John Tramontin, director of data services at BellSouth Business. "We try not to get pulled into those price wars."

Instead, the RBOCs are bundling their simple transport services, such as T-1, with other features, such as managing routers or providing Internet access.

Data services for business are high-margin, and carriers need to keep them that way to ensure revenue.

CLECs coming into cities to challenge RBOCs employ a similar strategy, offering integrated access services that combine different types of traffic on a single T-1, for example.

Customers pay more than they would for a single T-1. However, the customer saves overall because CLECs squeeze more traffic onto that one line, which means the customer requires fewer T-1s, Current Analysis' Garland says.

"Everything is going through it to wring the last bit from a T-1."

Glasberg suggests that newer technologies, such as ATM, eventually will replace more mature ones, such as frame relay. He says Bell Atlantic ATM pricing has dropped enough in Boston to warrant using a single ATM DS-3 connection rather than multiple frame relay T-1s to a central site on his frame network. "ATM prices are dropping to make it more attractive vs. frame relay. After all, Bell Atlantic has a hell of an investment in ATM," Glasberg says.

Another weapon CLECs use is the advantage of not having an existing network, according to Robert Rosenberg, president of Insight Research, a Parsippany, New Jersey, telecom market research firm. That lets them build with new technologies.

RBOCs naturally try to hold off lowering prices for as long as they can, but competitors force their hand when they embrace digital subscriber line (DSL), local multipoint distribution services and other high-speed technologies, Garland says. RBOCs have no choice but to respond.

The prime example is DSL, which promises T-1-like bandwidth for a fraction of the cost. This has already chipped away at T-1 prices and should continue as other high-speed access services, such as cable modems and broadband wireless, become more prevalent, IDC's Posey says.

Glasberg says he is looking at DSL as a less expensive way to connect offices to the state's network resources. At the same time, he is getting indications that Bell Atlantic will drop its frame relay prices. "Now I see the impetus as other WAN media start to pop up," Glasberg says. "DSL will be a strong player."

Customers have had success finding lower prices by shopping around. For example, Lund says he stopped hassling with RBOCs to buy T-1 access to long-distance providers. Instead, he buys a long-distance package that includes the local loop at a rate far below what the RBOCs charge. The long-haul carriers are willing to eat some of the cost to win the long-distance business, he says.

If prices aren't dropping fast enough for you, take a tip from Glasberg and demand better deals. "My satisfaction is probably what it was before the telecom act," he says. "But when I'm not satisfied, I beat the drum."

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