Electric avenues: telecommunications reform breaks down old barriers and creates new opportunities - Telecommunications Act of 1996

Entrepreneur, June, 1996 by Cynthia E. Griffin

The sky's the limit! At least, that's the consensus about opportunities that could arise out of the Telecommunications Act of 1996, signed into law in February. But don't think business as usual.

"Telecommunications companies are no longer just a telephone company or a cable company; they are information companies," says Marc A. Pearl at the Information Technology Association of America (ITAA).

The two major provisions of the bill are: 1) long-distance phone companies will be allowed to operate in local markets and local companies will be able to operate in long-distance markets, and 2) cable companies will be able to provide local and long-distance phone services, while phone companies can provide cable services. Essentially, this bill allows one company to handle all your communications needs, says Tom Housel, a visiting professor of information and operations management at the University of Southern California (USC) in Los Angeles. Your telephone company could offer you long distance and local calling, cable television service and even access to the Internet.

One of the most important results of this legislation is that local long-distance phone costs will drop, says Mike Collins of the House Commerce Committee, which helped shepherd the bill through Congress. "What happened in long distance will happen in local long distance," predicts Collins, who says deregulation of long-distance companies slashed prices 40 percent to 60 percent.

But don't jump for joy yet, cautions Neil Sachnoff, president of the TeleCom Clinic in Edison, NewJersey, because those benefits could be as far as five years down the road. "In the short term, there's going to be a lot of confusion. Companies are going to unbundle services and experiment with new services. Some are going to succeed while others will fail.

"I think it's going to be buyer beware," continues Sachnoff, whose company offers telecommunications research, publishing and consulting services. "It's going to be a time of ever-increasing changes, and the rate of change is going to be tremendous. It will be hard to keep an eye on the ball. I wouldn't get into any longterm contracts [with providers] because you don't know what will happen six months down the road that you could take advantage of."

Monumental changes have already begun. These include the recent merger of two Baby Bells-Pacific Telesis and SBC Communications. Experts predict more consolidation as firms seek to become multifaceted telecommunications providers.

Another critical change Housel believes could be on the horizon is the realignment of service providers in rural areas to replicate what happened in Glasgow, Kentucky. This rural community of about 14,000 was worried about what deregulation would mean for its municipally owned electric company. So in 1988, the utility decided to offer cable television and telephone service to its residents.

The move put the city on a collision course with the local cable company, which did not take the incursion lightly. In addition to suing the utility, the cable company tried to undercut it by lowering its prices. But when the legal dust cleared, the electric company was the winner (though the cable company is fighting it still), and Glasgow's system became a model for other small towns.

Housel says this example will be very important to rural communities because the telecommunications bill immediately deregulates cable rates in small communities. "I think in rural communities [where there's little or no competition] it's going to be the law of the jungle, with the biggest dog winning," he predicts. "I think [residents] are in for some price increases."

* A WORLD OF OPPORTUNITIES

While lower rates are important, they are not the only benefits small businesses will garner from the new telecommunications act. A key provision sponsored by Rep. Edolphus Towns (D-NY) establishes the Telecommunications Development Fund, which gives entrepreneurs low-interest loans to create telecommunications ventures.

"This legislation came about because there was a recognition that the primary impediment for many small businesses was lack of access to capital," explains Khalil Munir, an aide to Towns.

According to Munir, the fund will be financed with interest generated by the deposits from companies hoping to obtain licenses during Federal Communications Commission (FCC) auctions. This amount is expected to be as high as $100 million within a year.

A board that includes representatives from the FCC, the U.S. Treasury Department, the Small Business Administration and four private-sector members will direct how the fund is administered, says Thomas A. Hart Jr., a Washington, DC, telecommunications attorney with Ginsburg, Feldman and Bress who helped draft the legislation. Hart estimates the first loans could be made as early as September and could involve anything from broadcasting and cable to wireless communications services. He adds, "The funds can be used for acquisitions, working capital, startups and to upgrade existing facilities."