Washington -- Cablevision Systems Corp.CEO James Dolan last week delivered a clear message to Washington policymakers: Give thelittle guys a chance to eke out some local phone-market share before unleashing the BabyBells into long distance.
Dolan, in a briefing to reporters here, saidCablevision's foray into the residential-phone business, which began in the fourthquarter of 1997, has generated remarkable results: 12 percent penetration in a 5,000-hometest.
"This is real competition. This is the kind ofcompetition that Congress envisioned when they passed the [Telecommunications] Act of1996," Dolan said.
The Long Island, N.Y., residential test occurred followingCablevision's 1994 plunge into the business market, which, so far, has yielded $40million in annual revenue from 1,000 customers leasing 25,000 access lines.
"What that tells us and, hopefully, tells you is thatCablevision knows how to be in the telephone business," Dolan said.
But he indicated that Cablevision's OptimumTelephone -- the residential service that he hopes to market to 240,000 homes by the endof next year -- would fail to move past the fledgling stage if Washington policymakersallow the Baby Bells into long distance prematurely.
"As soon as the heat's off, I don't see anyreason for those regional Bells to cooperate any more than they have," Dolan said."And I actually think that they would probably cooperate less."
Under the Telecommunications Act of 1996,the Bells are forbidden to enter the lucrative long-distance arena until they have openedtheir networks to competition pursuant to an elaborate checklist, which includes allowingnew entrants to link with the incumbent's network and letting customers retain theirnumbers when switching local carriers.
Lisa Rosenblum, Cablevision's top telephone-regulationexecutive, appeared before the Senate Commerce Committee last week to explain that thechecklist was key to opening local markets, but, even so, it was not a perfect tool.
"Obstacles remain to the full deployment of ourservices," Rosenblum said. If the Bells gain access to long-distance markets,Congress should ensure that "no backsliding" that would be harmful to newentrants could occur, she added.
Dolan said Optimum was having trouble with BellAtlantic Corp. even before the company has long-distance approval.
He pointed out that telephone-number retention -- alsocalled number portability -- has to occur simultaneously with the conversion of thecustomer from Bell Atlantic to Optimum. If the number transfer lags behind the conversion,the new Optimum customer could lose local phone service for a up to a day.
"That's a little difficult as a marketproposition," Dolan said. He attributed the cause to Bell Atlantic'sinexperience with providing number portability to a competing provider.
"I don't believe that it's a deep conspiracytheory by [Bell Atlantic president and chief operating officer] Ivan Seidenberg and thegang," Dolan said.
Bell Atlantic spokeswoman Susan Butta said the company wasunaware of any number-portability problems with Cablevision.
"We know of no complaints from Cablevision about ournumber portability on Long Island," Butta said.
Some Capitol Hill lawmakers are furious with the FederalCommunications Commission for refusing to grant any of the four long-distance applicationsthat have been filed since 1996.
Two weeks ago, Senate Commerce Committee chairman JohnMcCain (R-Ariz.) introduced a bill that would scrap the checklist and let the Bellsprovide long-distance service within their regions in one year.
"I would like Congress not to make it easier for thephone companies," Dolan said. "Congress needs to be patient with the act andpatient with the idea that competition is coming."
Prior to Rosenblum's appearance, FCC chairman WilliamKennard told the Commerce Committee that he could not promise that his agency would permita Baby Bell to enter long distance anytime soon.
Seated beside his fellow FCC commissioners, Kennard saidthat permitting Bell entry into long distance before local markets were truly open wouldcreate more problems than it would solve, possibly igniting a merger frenzy between localand long-distance companies.
"I think that it would be irresponsible for me to sithere today and say that by the end of the year, we'll have a [Baby Bell] into longdistance," Kennard said. "I fully hope that is possible. I fully hope that wecan get there if we get a quality application."
McCain, Sen. John Breaux (D-La.) and Sen. Sam Brownback(R-Kan.) said they were upset that the FCC had refused to endorse any Baby Bell entryapplication.
The FCC, they said, had failed to provide the properguidance so that the Baby Bells would know specifically what they had to do under thelaw's Section 271 checklist to win FCC approval.
However, Sen. Ernest Hollings (D-S.C.) saluted theFCC's performance to date.
"I think that you are doing a fantastic job withrespect to 271," Hollings said. "The 14-point checklist is no mystery. Theyagreed to it."
Dolan said Optimum's apparent popularity has beenfueled by Cablevision's ability to create incentive plans. Optimum customers can callanywhere on Long Island for 10 cents per minute, and customers with $25 monthly phonebills receive a 10 percent break on their cable bills. The cable discount grows withtelephone usage.
"It is not only conceivable, but it has happened thatthe customer can have cable service for free by switching over [to Optimum]," Dolansaid. "No customer is confused by the concept of, 'Cut your cable bill inhalf.'"
Mike McGrail, president and general manager of Cable DataInc., pointed out that although cable operators can bundle voice and video in theresidential market, they are not able to offer the same package as widely in the businesssegment.
Joe Cece, Cablevision's senior vice president forstrategic planning, said 10 percent to 12 percent penetration would make Optimum abreakeven business, and 18 percent to 20 percent would make it a "very attractivecash-flow" business. Dolan said 25 percent penetration is possible in the yearsahead.
"They don't need 50 percent penetration, andmaybe not even one-third," to make it in residential phone service," said BruceLeichtman, The Yankee Group's director of media and entertainment strategies.
Dolan pointed out that someone entering the cable businesswould have trouble surviving with less than 25 percent penetration. He was referring totelephone-overbuild competitors Ameritech New Media in Ohio and Southern New EnglandTelecommunications Corp. in Connecticut, claiming that they had less than"double-digit" subscriber penetration.
"And they're in their second and third years ofoperation," Dolan said.
Monica Hogan contributed to this report.