Originally created 04/22/01

Profit comes from businesses



Ask a BellSouth representative whether Georgia's telecommunications industry is competitive, and the answer is, inevitably, "Of course it is.`

Ask the same of the smaller companies scratching for a share of Augusta's telecommunications market, and the response is a bit more muddled:

"Yes and no." "Kind of." "In some ways, I guess so."

Ask a member of the Georgia Public Service Commission, and you'll get an analogy about the Telecommunications Act of 1996:

"What the act did was open the door for competition," commission Chairman Bubba McDonald said. "It's like building a new road. Sometimes development doesn't occur rapidly on a new road. It takes some time to grow."

Congress passed the Federal Communications Commission regulation to loosen the Baby Bells' hold on the industry by allowing competitors to use existing network space.

The effect has been noticeable in Georgia. BellSouth currently has 120 competitors who serve more than 730,000 customer lines - about 15 percent of the state's total.

The act has opened doors for companies that provide phone service to businesses in the Augusta area. For example:

Atlantic.Net, one of the Southeast's fastest-growing Internet service providers, recently began offering high-speed Digital Subscriber Line (DSL) Internet access to businesses in Augusta.

Birch Telecom Inc. recently opened offices in Augusta. The 3-year-old communications company specializes in providing businesses basic local and long-distance service.

Covad Communications, formerly BlueStar.net, a national broadband service provider, specializes in selling customized broadband solutions to small businesses.

USCarrier was established in 1997 by 19 independent Georgia telephone companies and one from South Carolina. The company was formed to develop a statewide fiber-optic network to offer high-speed Internet services.

New Edge Networks recently introduced high-speed DSL and other business-class broadband services in Augusta.

While the 1996 Telecommunications Act opened up opportunities for companies catering to business needs, the regulation has had little impact on basic residential service.

Despite the act's lofty language about creating a competitive industry, consumers who just want basic phone service still have no practical alternative to BellSouth.

Residential service not profitable

No company, not even BellSouth, makes a profit selling basic residential service. In fact, the Atlanta-based Baby Bell supplements residential rates by charging higher rates for businesses and access charges for long-distance carriers.

BellSouth says the true cost of establishing any phone line is $33.80. Basic residential phone service through BellSouth costs $18.50 plus tax; basic service for businesses varies but is always considerably higher than cost.

"Business has always subsidized residential rates - the residential market is not where we make profits," said Stan Shepherd, BellSouth's new regional manager. "Yet we must provide that service at the same cost to every market in the state."

BellSouth's Competitive Local Exchange Carrier program allows smaller companies to come into the area and use BellSouth's network to provide service at discounted rates.

This allows smaller companies to penetrate the market without making enormous investments to build a network. BellSouth sells its network space at a 17.3 percent discount for business uses and 20.3 percent discount for residential.

Independent companies still can't make basic residential phone service profitable.

"Residential service is never going to float a boat like Birch," said David Scott, the president and CEO of Birch Telecom. "We can never go into a city and do that as a stand-alone business. We'd love to, but we need to offer other amenities, like high-speed DSL, long distance and cable."

Another problem for residential service providers is that the consumer market is spread out, whereas business areas are well-concentrated.

"Our competition wants to cover as many lines as it can in as tight an area as it can to make as much money as it can," Mr. Shepherd said. "They're not seeing the profit margins they want in residential service."

Telecom act a wash?

Birch Telecom opened in Augusta in March and currently has 10 employees and 264 customers, representing just shy of 900 phone lines in service. The company hopes to soon add DSL to the services it offers businesses in BellSouth markets.

Three years ago, Birch began providing business service in Missouri and Kansas markets. Today, Birch offers limited residential services in those two states.

That doesn't mean an alternative basic residential service is coming to Augusta any time soon.

For one thing, the current financial market condition has slowed growth in competing companies. Only a few companies in the industry, such as Birch, continue to expand.

"It will take a little while longer before there is a true competitive environment," Mr. Scott said. "The task of unwinding a monopoly that's been around for years is daunting. There was a day when only large businesses had a choice. Now small businesses have a choice. We're working hard now to open up the residential business."

At least one BellSouth competitor, Knology, is offering basic residential service - but only to customers who also sign up for its cable television service.

It will be another two or three years before competitors are able to meaningfully penetrate the residential market, Mr. Scott said.

But the state's Public Service Commission has long been a national leader in opening local markets. Georgia has one of the most competitive telecommunications markets in the union, based on the independents' percentage of total market share.

That number is still relatively small - about 15 percent.

"We had the 1995 State Local Competition Act, and since then we've taken a very active position," said David Burgess, commission member. "Once we got a clear mandate from the general assembly, we made aggressive decisions in pricing and (distributing) BellSouth's network to competing providers."

Mr. Burgess was employed as the commission's director of telecommunications for 17 years before being appointed to the commission in 1999 and elected chairman in 2000. He said the three big long-distance companies - WorldCom, AT&T and Sprint - are beginning to take an interest in providing local services.

The market might really loosen up when WorldCom seeks permission from the PSC on May 3 to provide local service in Georgia.

Mr. Burgess said the commission will likely rule favorably for WorldCom, a company that could conceivably gain 5,000 to 8,000 Georgia customers a day.

In the meantime, BellSouth is lobbying the FCC and PSC for permission to enter the lucrative long-distance market. In order to do that, BellSouth needs to convince the government agencies it can pass a 14-point checklist demonstrating that the Georgia market is competitive.

Mr. Burgess said he expects that once the long-distance companies get involved with providing local service, the PSC will be able to recommend to the FCC that Georgia is indeed competitive.

"There's certainly a good chance, but ultimately it's up to the FCC," Mr. Burgess said.

Mr. Shepherd said he suspects long-distance companies have avoided getting involved in residential service markets because they don't want federal and state regulators to clear the way for BellSouth to offer long-distance service.

"We think the more residential customers long-distance companies got, the more they would prove our point that the markets have opened up," Mr. Shepherd said. "That would allow us into the long-distance market, and they don't want that."

While any market that features one company with about 85 percent of the market share can hardly be called competitive in the classic sense, at least, for now, businesses and some residential customers do have a choice.

"The only way to make sure we maintain our customer base is to provide the services our customers are looking for," Mr. Shepherd said. "I think soon you'll see more consumer choices opening up. Consumers today are demanding more and more for their money. We won't be the only player they have to choose from."

Reach John Bankston at (706) 823-3352 or jbanks15@hotmail.com.

The Telecom Act of 1996 was supposed to end any monopoly Ma Bell had in the telecommunications industry, but five years later consumers who want only basic residential phone service in Augusta have to go through BellSouth.

Smaller phone companies have penetrated the Augusta market, but for profit reasons focus solely on providing premium services such as cable and high-speed Internet access. If they do offer basic service its only to businesses.

That's about to change. The Georgia Public Service Commission is poised to allow the long-distance giants - MCI Worldcom, AT&T and Sprint - into the local phone service market. BellSouth says it welcomes the competition.