Local phone monopolies about to be disconnected.

GTE, Pac Bell to have as many as 150 competitors

The business of providing local telephone service is about to be opened up to competitive forces for the first time in state history, and business customers are expected to be the big winners, said industry officials.

Angelenos, who have long had their local phone calls monopolized by GTE and Pacific Bell, could have up to 150 carriers to choose from under the ruling expected by the California Public Utilities Commission this summer.

Industry insiders said they expect the local phone market to be opened up to competition as early as September.

The most likely restructuring plan, according to many insiders, would involve GTE and Pacific Bell becoming "default carriers" for the L.A. region. Under such an arrangement, local toll calls would automatically be handled by either GTE or Pacific Bell unless the caller selected another carrier by dialing a three-digit access code.

"This is very, very good news to business customers," asserted Dan Rhinehart, manager of state government affairs for AT&T Communications of California. "Rates will come down so substantially, you will know the difference."

A 30 percent reduction in toll calls is the "minimum savings," he said. And with various discount calling programs being offered to callers, savings could be as much as 40 and 50 percent.

California is currently broken up into 11 local access and transport areas, known as LATAs. (See accompanying map.) Local exchange carriers are currently assigned exclusivity for each LATA. Los Angeles County is in LATA 5, which extends from Blythe (east of San Diego) to Bishop (southeast of Stockton). Pacific Bell and GTE roughly split the number of customers in LATA 5, with GTE picking up a preponderance of coastal communities and Pacific Bell getting most of the City of Los Angeles, most of Orange County and most of the less-populated communities.

With the anticipated opening of competition within LATAs, a substantial savings is expected for businesses, which typically place a far greater volume of local toll calls than individuals.

While the opening of LATA markets to competition is expected to result in lower local toll charges, phone companies are hoping to offset those lower toll charges by increasing a number of services, including "basic service."

The basic service charges cover toll-free phone service within a roughly 12-mile radius of the phone-users premises. Currently this service is provided by both Pacific Bell and GTE for about $10 a month.

The 21 existing local exchange carriers operating in California, such as GTE and Pacific Bell, have proposed a variety of rate restructuring plans to the Public Utilities Commission that would increase the rate for a variety of services they offer such as installing a phone, sending a technician and providing directory assistance.

Dan Smith, a spokesman for GTE, said his company's restructuring plan was "designed so that when competitors enter this market, we don't get blown out of the water."

Under the existing phone market structure, local toll call charges have been kept high to subsidize the cost of basic service, Smith explained.

Providing universal telephone service has been a goal since the enactment of the 1934 Federal Communications Act, Smith said. Therefore, nonessential services, like long distance, were priced artificially high, while local service was provided at artificially low prices.

Under GTE's proposed restructuring plan, the lower local toll charges and higher basic service charges would pencil out to monthly savings of about $1.50 for the average residential user, according to GTE estimates. And under Pacific Bell's plan, residential customers would save only 56 cents a month, according to Pacific Bell estimates.

Customers who never make toll calls would obviously suffer a straight increase on their bill because their higher service charges would not be offset by lower local toll charges. But businesses, which typically place a higher percentage of toll calls than individuals, would garner the most savings.

California is one of just six states that don't allow competition for local phone calls. Therefore, the move to break the local monopoly is considered inevitable, said industry experts.

"California is just way behind," said AT&T's Rhinehart.

Just how much market penetration AT&T will make, however, is questionable, he said, because long-distance carriers like AT&T will be required by the Public Utilities Commission to have access codes. If callers want to use AT&T as their local toll carrier, for instance, they would have to dial 1-800-ATT as a prefix for whatever phone number they are calling.

Rhinehart said studies by long-distance carriers show that access codes are a big deterrent for consumers. To be competitive with local exchange carriers that typically don't require access codes, Rhinehart said, AT&T will offer its services for 10 percent less than Pacific Bell and GTE.

Rhinehart also pointed out that AT&T has been in the local toll market in other states since as far back as 1984, and the company's market penetration has remained in "the low single digits." Rhinehart attributed much of that poor penetration to the requirement that callers use a three-digit access code to use AT&T as their local toll call provider.

While some might predict the pending opening of California's LATA market would result in a loss of business for Pacific Bell and GTE, Pacific Bell is actually counting on gaining customers, said Mike Miller, vice president of competitive readiness.

"Our hope is that we will win customers back," he said, lamenting the fact that thousands of Pacific Bell's customers got their local toll call service provided through unauthorized competition. That "unauthorized competition" has come from long-distance carriers that have been providing local service "under the table," Miller said.

Joel McIlvain, a regulatory analyst for the Public Utilities Commission, acknowledged that it's a common practice for long-distance carriers to "steal customers from local companies and undercut their prices."

He said long-distance carriers are legally allowed to cut into local lines by paying access charges to local exchange carriers to hook up their long-distance customers. As a result, many long-distance carriers can offer their customers local toll-call service at prices below those being charged by local carriers because the long-distance carriers don't have to factor in the cost of installing or maintaining expensive local system equipment.

Some of the cost changes proposed in GTE's restructuring plan include:

* The basic monthly rate for businesses would increase from $11.06 to $14.90.

* The charge for establishing business service would increase from $34.50 to $50.

* The charge for sending a GTE technician to a business would increase from $45.20 to $90.

* Instead of getting two free directory assistance calls per month, businesses would be charged 35 cents for each directory assistance call.

Along with a number of services charged to phone customers, Smith said the cost of having a phone is high because of a number of surcharges, such as for providing phone service to poor people and deaf people, a surcharge for funding the Public Utilities Commission and a surcharge for local utility taxes.