Let the race begin.

• Author: Laube, David
• Position: Impact of Telecommunications Act of 1996 on telecommunications industry - Includes related article on new regulatory framework - Information Management

The Telecommunications Act of 1996 was signed into law by President Clinton on February 8, 1996. It paved the way for the deregulation of communications services across the country and opened up local telephone service, long-distance service and cable television to new competition. The bill went through several revisions before it was approved by Congress on February 1, 1996, and marks the first major revision of the U.S. communications laws since 1934.

As expected, the passage of the bill prompted a wave of change. Every week brings another announcement of a merger or acquisition. Bell Atlantic and Nynex, two of the regional Bell operating companies, have agreed to merge. U S WEST is acquiring Continental Cablevision. The three major long-distance providers - AT&T, MCI and Sprint - plan to launch their attacks on the local telephone markets. Futurists predict that the sweeping reform will bring about new products and services as well as lower prices, all to the benefit of consumers. At a meeting of FEI's Committee on Information Management, three executives in the telecommunications industry talked about the impact of the law on their business.

GETTING WIRED

by David Laube Vice president and CIO U S WEST Communications Denver

When I joined U S WEST 13 years ago, I'd spent about half my career in high-tech, start-up companies. My biggest concern was that U S WEST was in a stodgy industry and might be a boring place to work. That notion was quickly dispelled with AT&T's divestiture, and now with the Telecommunications Act of 1996.

To put the new legislation in context, the United States operated under a telecommunications law that was drafted in 1934. It was the monopoly model, which said the cost of building competing networks is a waste of resources. The objective was to provide everybody in the United States with telephone service.

The model worked extremely well. The United States has the highest penetration rate of telephone service of any country in the world. But although the law created one network, it also created subsidized pricing where the price was not linked with cost. For example, long distance subsidized local rates. Urban customers subsidized rural customers. Business customers subsidized residential customers. This was okay, because there was no competition.

Then, competition was introduced in the late 1960s in the equipment business. Now you were allowed to own your own telephone. Some years later, MCI used technology to create competition in the long-distance business, and look what happened. This and other innovations in technology drove divestiture. In 1984, the courts broke up AT&T. The company kept the long-distance business and the equipment manufacturing business, but it put the local telephone business into the seven regional Bell operating companies.

In the years since divestiture, technological change likewise made the divestiture model obsolete. Telephone service can be provided over cable TV wires, video can be sent over telephone wires and the distinction between inter- and intra-LATA long distance became irrelevant. Even the cost of building completely new networks has dropped significantly. It was time for a new approach. That's why Congress passed the new telecommunications law.

Let's look at the impact the new legislation will have on the customer. The biggest change customers will see is incredible choice, whether they want it or not.

The competition for local residential telephone service is going to be very intense. In addition to the traditional telephone companies, local telephone service will be offered by the local cable companies over their cable wires. The long-distance companies have announced that they're getting into the local telephone business. Other companies have started to build their own networks to offer telephone service in major cities. The telecommunications legislation requires that the local telephone companies allow others to resell their services, and these resellers are, at this moment, getting into position all over the country. When you factor in five or more wireless telephone alternatives in major markets, you can see that all the ingredients are present for a gigantic battle over market share.

The second area in which customers will see more choice is in the long-distance business. While AT&T, MCI and Sprint have captured much of today's market, the legislation will allow the seven regional Bell operating companies to enter the business. This means that many consumers could have 10 or more choices for long-distance service.

The third area of choice will be video entertainment services. Although cable companies today have essentially a monopoly in many areas, the new legislation allows telephone companies to offer similar video services over the telephone wire. In addition, we're now seeing competition appear for video services from direct-broadcast satellite offerings and from wireless cable companies.

All this competition will drive another benefit for the customer - market innovation. In order to gain market share, many companies will develop new products and services very rapidly. Then they'll bundle and package product offerings across multiple-product lines. For example, you might...