Two Settlements May Widen The Pressures On Competition

By Andrew Pollack
The New York Times

January 9, 1982

A settlement of the antitrust suit against the American Telephone and Telegraph Company and the end of the Government's suit against the International Business Machines Corporation are likely to dramatically change the competitive situation in the rapidly merging industries of computers and telecommunications, according to industry officials and executives.

Industry sources suggested yesterday that the A.T.& T. settlement would likely help A.T.& T., hurt consumers and have mixed results for A.T.& T.'s numerous competitors. However, they cautioned that much of the effects of the settlement on the industry and consumers would depend on specific details of the settlement that were either not yet available or that are set to be worked out over the next several months.

"I think it's going to throw a lot of things in chaos for some time to come,'' said A.G.W. Biddle, president of the Computer and Communications Industry Association, a trade group that has vigorously protested Bell's efforts to expand into new markets.

Settlement May Help Company

A.T.& T. might benefit because the settlement lifts a big cloud from over its head. Under the settlement, A.T.& T. will divest itself of its local telephone exchange operations, its least profitable business. It will get to keep its profitable businesses of supplying long-distance service and customer equipment and be able to branch into new businesses, such as data processing, bringing it more directly into competition with I.B.M.

In addition, American Telephone and Telegraph will keep Bell Laboratories, which is regarded as a premier research facility, but will not have to make its patents available to everyone, as the company did when it was a regulated monopoly.

''What they've really done is taken the most capital intensive, politically intensive, labor intensive part of their business and given it to someone else,'' said Howard Anderson, managing director of the Yankee Group, a telecommunications industry market research firm.

Local Service Regulated

But since local service will continue to be a regulated monopoly and guaranteed a fair rate of profit, the new local service companies will be allowed to raise rates to cover the gap.

''What A.T.& T. has done is given its problems right back to the state utility commissioners,'' Mr. Anderson said. On the other hand, analysts note, A.T.& T.'s monopoly of local service -the fact that it had a phone in virtually every home and office of the cities it served, was also a source of power. Many customers would buy equipment and services from A.T.& T. instead of its competitors because it was easier to deal with a single company.

The effects of the settlement on A.T.& T.'s competitors are likely to vary depending on what part of the telecommunications business they are in. The Justice Department's antitrust suit focused on three areas in which it contended A.T.&T. had illegally tried to muffle competition.

Those were the provision of long distance telephone service, the sale of equipment such as office switchboards and telephones to customers, and the sale of equipment for use by the phone companies themselves. Each phase of the business will tend to be affected somewhat differently.

Benefit to Distance Carriers

The long-distance carriers might benefit because the settlement requires the local telephone companies to give the Bell competitors the same access to local lines as A.T.& T. will have. A customer would presumably be able to use a Bell competitor, such as MCI Communications or Southern Pacific Communications from a dial phone as well as from a touchtone phone and would not have to dial more digits to use a competitive service than to u se A.T.& T.'s long distance service.

''It's what we've been pushing for for a long time,'' said William G. McGowan, chairman of MCI. ''We darn near triple our market when we go from Touch-Tone to rotary phones.

However, MCI stock fell 3 7/8 points, to 29 1/8 bid, in over the over-the-counter trading, possibly because the settlement could hurt the company. A.T.&T., which contends long-distance rates have been kept high to subsidize local rates, might now be able to reduce the gap between its rates and those of its competitors. It contends the competitors do not pay a fair price for access to the local network.

Another group of competitors that will benefit are those like International Telephone and Telegraph and Northern Telecom that sell equipment for use by the local telephone companies. The Justice Department had charged that Bell's operating companies, such as New York Telephone, had unfairly favored Bell's own manufacturing arm, Western Electric, as a supplier of such equipment. With the local companies split from A.T.& T., they will have a greater tendency to treat Western Electric, which will remain with A.T.& T., as just another supplier.

Third Class of Competitors

It is less clear what effect the settlement would have on the third class of competitors, those that provide customer equipment such as telephones and electronic office swithboards, known as private branch exchanges.

''My initial gut reaction is it could be horrible,'' said M. Kenneth Oshman, president of the Rolm Corporation, a leading competitor of Bell in the private branch exchange market. Such competitors have been afraid American Telephone will use its control of the network to give its own equipment an advantage. While A.T.& T. will lose its local networks, it will still have great leverage in its long distance business, Mr. Oshman said.

''There's been nothing done to the monopoly. They've only taken away the heartache part of the business,'' he said. A.T.& T. has been itching to expand into new services such as data processing or computer communications. The settlement would allow A.T.& T. to do that but how it is done will be subject to legislation or to ruling by the Federal Communications Commission.

American Telephone was in the process of dividing into a regulated division, to handle local and long-distance calls, and an unregulated division to handle customer equipment and new data processing services. A.T.& T. officials indicated yesterday that they would proceed that way, except the regulated division would now handle only long-distance calls, rather than local calls. However, there was widespread feeling that the settlement changes things so drastically that both the F.C.C. and Congress would have to consider changing what they've done so far.

''They don't really address the competitive problems that we have,'' said Jerome L. Dreyer, president of the Association of Data Processing Service Organizations, trade group representing computer software companies, who feared A.T.& T.'s entry into their business. ''The settlement more directly impacts equipment and long-distance providers.''

Illustrations: photo of computer programmers at Bell Labs

Copyright 1982 The New York Times Company