Reach out, but not too far.

When it comes to local telephone competition are consumers getting a busy signal?

When President Clinton signed the Telecommunications Act of 1996 into law, it was widely praised by lawmakers and telephone industry analysts. Many of them promised that the landmark legislation would bring about technological innovations, more consumer choices and more competition.

Few people, however, predicted that local telephone competition would arrive any time soon. Two years later, it's uncertain if it has arrived at all. It depends on whom you ask.

The federal law was the first major overhaul of federal telecommunications policy in 62 years. It removed the barriers that kept companies from getting into each others' businesses. Long-distance companies, such as AT&T, MCI and Sprint, are now free to compete for local calling customers. Likewise, the regional Bell operating companies (Ameritech, Bell Atlantic, BellSouth, Pacific Telesis, Southwestern Bell Communications and US WEST) are free to compete for long-distance customers if they first allow competitors into the local markets they once controlled. One of the act's goals is to change the landscape of the telecommunications industry from a regulated monopoly to an open and fair competitive field.

The competition can take several forms, including new and old firms providing either long-distance or local telephone services. Section 253 of the act declares that "no state or local statute or regulation, or other state or local legal requirement, may prohibit or have the effect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunications service." This section preempts state restrictions on local competition. And Section 251 provides that all telecommunications providers must "interconnect directly or indirectly with the facilities and equipment of other telecommunications carriers." Interconnection is the linking of a communications channel, facility, service or piece of equipment with another from a different network.

President Clinton called the law "truly revolutionary legislation that will bring the future to our doorstep." Industry experts say that Clinton's vision is still mostly just that - a vision. Few consumers have tasted the fruits of competition.

"In spite of all the regulatory activity taking place at both the federal and state levels, the local telephone companies continue to have a monopoly over local markets," says Mark Phigler, president of Americans for Competitive Telecommunications. The consumer group reported last fall that none of the regional Bell operating companies had so far fully complied with the federal act and that no real local competition yet exists.

Some industry analysts hold to a contrary viewpoint and maintain that since the federal act, competition has accelerated. AT&T bought a large share of a direct broadcast satellite company; US WEST paid $5.3 billion to acquire Continental Cablevision, the country's third largest cable television company; and Bell Atlantic and NYNEX merged in 1996. Leaders from an association that represents local telephone companies, point out that they have raised $14 million for investment in new broadband local networks in the past two years. And analysts point out that in large metropolitan areas, there is a fair amount of competition for local business calling customers.

It is the residential customer who currently has virtually no choice of local providers, but supporters say that will come. At least one former state regulator is not pleased with the pace of local competition.

Kenneth McClure, who served as chairman and vice chairman of the Missouri Public Service Commission, says he is greatly disappointed that residential competition has failed to develop more quickly. He says that residential competition has been a victim of unrealistic expectations by the Congress, jurisdictional fights between federal and state regulators, litigation among the parties, state legislative battles and the inability of new competitors to develop a workable plan for entering the local market. Fred Van Driesum, a staffer with the Arkansas legislature, says that the enormous complexity of the federal act and the law passed in Arkansas are the main reason for the slow pace of implementation in his state. "The previous federal Telecommunications Act was passed in 1934. To dismantle a regulatory structure in place for over 60 years is a momentous task."

Van Driesum says that there is a good chance that the Arkansas General Assembly will revisit the issue in 1999. Some other industry observers note it will take time, but eventually residential consumers will see real competition and cost savings.

If the federal act indeed promises a new competitive environment, some states are ready for it. Arizona and Montana recently established groups to study the competitive nature of the telecommunications industry in their states. Idaho, Minnesota, Montana and Nebraska passed laws in 1997 that promote competition in conformity with the federal act. Idaho's bill (HB 313) removes barriers to entry by new competitors and removes pricing regulations for new entrants into the local telephone markets. Further, it gives the Idaho Public Utilities Commission power to oversee the effects of competition on the public and suspend competitive measures if necessary. And Minnesota's bill (SB 739) lists among its goals encouraging competition for local telephone services.

WAITING FOR THE HIGH COURT

Since the enactment of the federal law, various provisions have been challenged in both state and federal courts, A recent decision further complicates local telephone competition and may hold off its arrival longer than supporters want, but it reinforces state regulation.

Following the act's passage, the Federal Communications Commission (FCC) issued rules regulating what local telephone companies could charge their competitors for the use of their networks. The cost for this access has historically been determined by states with guidelines issued by the state regulatory commissions. The three-judge panel of the U.S. Appeals Court for the 8th Circuit in St. Louis, Mo., ruled that the FCC did not have jurisdiction to issue pricing rules that preempted state regulations. The court criticized the FCC for trampling states' rights in order to implement the federal act. The U.S. Supreme Court has accepted the case for review and until that ruling comes down, competition in the local telephone market appears to be on hold.

TELECOMMUNICATIONS REGULATION

1934 - Communications Act of 1934 establishes the Federal Communication Commission.

1949 - Justice Department files antitrust suit against AT&T alleging that AT&T and Western Electric tried to monopolize the telephone equipment market.

1956 - AT&T signs consent decree restricting it to providing telephone service and Western Electric to providing telephone equipment.

1974 - U.S. government files antitrust suit against AT&T.

1982 - AT&T and the Department of Justice settle antitrust suit.

1984 - AT&T divest itself of local telephone companies, creating the regional Bell operating companies.

Robert D. Boerner tracks state telecommunications issues for NCSL.