Regulator enthusiastic about promise of new Sprint system

Friday, June 5, 1998 | 10:30 a.m.

Sprint Corp.'s new telecommunications technology offers several new features that blur the lines of today's regulatory environment, a member of the Nevada Public Utilities Commission said.

Commissioner Tim Hay, who specializes in telecommunications matters for the three-member state board that regulates electricity, gas and water utilities as well as phone service, said Sprint's proposed nationwide phone network appears to be consistent with the goals of the Telecommunications Act of 1996.

"We've only heard what Sprint announced Tuesday, but it appears to be a very exciting, consumer-friendly and cost-effective sort of service that would be of great value in all sorts of applications," Hay said.

The network is designed to handle multiple phone calls, receive faxes, and transmit data over the Internet at the same time over a single line.

But while Hay is enthusiastic about the potential of Sprint's new phone service, he concurred that there are a number of regulatory issues that may arise as a result of it.

Among the possible new innovations: using a "meter" to calculate the amount of data transmitted over telephone lines. While metering is common for electricity, gas and water, it would break new ground for telephone service. But Hay is convinced that could be worked out.

"From what I know of the Sprint service, our existing regulatory structure should be flexible enough to accommodate anything new," Hay said.

Sprint only recently received regulatory approvals to market its long-distance service as part of the local phone system. Sprint can actually begin taking advantage of that regulatory approval on Monday when a 90-day waiting period ends.

Sprint has said its new technology could drastically reduce the cost of long-distance calling since the digital packets for voice transmissions are considerably smaller than video and high-volume data.

Traditionally, phone companies have charged for calls based on the distance between the caller and the call's recipient. State and federal regulations have been designed to fit that model.

Sprint acknowledges that its new technology may cause some regulatory difficulties across the nation.

"The problem is that the current system of regulatory approvals is built up around a paradigm of local and long-distance," said John Hoffman, Sprint's senior vice president of external affairs. "A lot of old regulations don't fit. What we've got to do is sit down and work through" these issues with regulators, he said.

Sprint's new network could wreak havoc with the current regulatory setup because it won't distinguish calls and data based on distance.

Scott Cleland, managing director of Legg Mason Inc.'s Precursor Group, said the Sprint plan still has a long way to go. "There's a big gap between concept and execution on a nationwide scale," he said.

Another key regulatory problem is that long-distance companies currently pay local phone companies an access fee for beginning and ending calls. Those access fees help pay for the universal service fund, which subsidizes the cost of keeping local phone service affordable in rural areas and in areas where it's expensive to build and maintain a phone network, such as mountain communities. Sprint won't connect its calls in the traditional manner, so the access charges wouldn't apply in the same way.

"This is another example of long-distance companies looking to shirk their responsibility for contributing money to support service to high-cost or rural areas," said David Beigie, a spokesman for US West Communications Group, which provides local phone service in 14 states in the western U.S.

Hoffman denied that bypassing the access fees has anything to do with Sprint's plans.

Still, the Sprint plan "raises serious questions" about the way universal service is funded, said Jeffrey Kagan, president of Kagan Telecom Associates, an Atlanta-based market research firm.

George Reed Dellinger, a telecommunications analyst with HSBC Washington analysis, said Sprint's plan is "evolutionary and not revolutionary" and it'll just "require the FCC to address the (access charge) issues sooner rather than later."

Cleland said the Sprint network "is going to put pressure on the access charge regime, though this is not the sole death knell of access charges."

The Federal Communications Commission had no immediate comment.

Sprint has been in talks with the Baby Bell local phone companies and GTE Corp. about the new network. Sprint will need to get the Bells to agree to hook up Sprint's high-speed data lines directly to consumers' homes, or the company must find alternative paths into homes, such as cable TV or wireless technologies, said Hoffman.

"Some Bell companies are being cooperative, and others aren't," said Hoffman. He declined to specify which companies are cooperating.

"Their plans for entry into the local market indicate once again the fluid nature of the telecommunications industry," said Bill McCloskey, a spokesman for BellSouth. The announcement "indicates why it's important for the Bell companies to be allowed to offer the same services, which of course includes long-distance," he said.

The 1996 Telecommunications Act requires the Baby Bells to open their phone networks to competitors. "As long as (Sprint) follows the rules, welcome aboard," said McCloskey.

BLOOMBERG BUSINESS NEWS contributed to this report.