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Over the past 12 months, AT&T has lured about 2 million new local customers. By the end of this year, MCI should have 3 million; in just the past six months, 1 million customers have signed up for its new Neighborhood Plan, a bundle of local and long-distance service that allows unlimited U.S. calls for $50 to $60 a month. From December 1999 to the end of 2001, the number of Bell lines leased by rivals quadrupled, to about 8 million. That's one of the few bright spots for the otherwise floundering long-distance giants, which have been able to grab nearly 10% of the market in certain states, such as Michigan and New York. It's no wonder that Wall Street has dragged down the stocks of the three major Bells as much as 30% over the past 12 months or that, with revenues and earnings flat or dropping, BellSouth, SBC and Verizon have been handing out thousands of pink slips. "The Bells have started to bleed. This is what everyone was waiting for," says Jeffrey Kagan, an independent telecom analyst in Atlanta, referring to the original intent of the Telecommunications Act. "Now the question for regulators is, When do you give them a Band-Aid?"
Some of the Bells' wounds may not be easily healed. More and more Americans, especially the young and single, are relying on wireless phones as their primary mode of communication; 3% to 5% of Americans have no landlines into their homes. Wireless calls account for fully 30% of all personal calling minutes and are expected to reach 50% by 2006, according to the Yankee Group, a tech consultancy based in Boston. Verizon owns the nation's largest wireless carrier, and SBC and BellSouth jointly own its closest competitor, Cingular. But the fiercely competitive, low-margin wireless business is no substitute for the steady profits the Bells long reaped from local service.
A small but growing number of consumers are taking a bigger leap, buying their phone service from a cable company like Cox Communications, which has grabbed a 25% market share in Orange County, Calif., and Omaha, Neb., or the new Comcast, which recently merged with AT&T Broadband. And as more households upgrade to high-speed Internet access (2 out of 3 choose a cable modem over a DSL phone connection), the Bells are losing a valuable source of revenue: the second phone line that customers use for dial-up Internet service.
For the first time since the Great Depression, the number of residential phone lines in the U.S. declined last year, about 1%, a trend that is expected to continue for the foreseeable future. Says BellSouth ceo Duane Ackerman: "We have enough on our plate without having to deal with contrived competition."
To rid themselves of it, Ackerman and his colleagues Ivan Seidenberg at Verizon and Edward Whitacre at SBC are pressing FCC chairman Michael Powell to modify the competitive rules during the agency's "triennial review" early next year. If they don't get relief, the Bell chiefs warn, the last relatively healthy sector of the ailing telecom industry will soon be facing financial ruin, and America's communications infrastructure will follow it into disrepair.