Gnat v. Elephant

MCI Communications Corp. seems like the last company likely to worry American Telephone and Telegraph Co.

AT&T, which has $67 billion in assets, is the biggest of all corporate elephants; by comparison, MCI, whose principal asset is a $64 million line of bank credit, is scarcely even a gnat. Yet MCI last week bested Ma Bell in a court test that, in the eyes of A T & T officials, makes it a serious competitor. AT&T Chairman John D. deButts is, in his own words, "marching up and down the land" complaining to business audiences about the unfairness of it all.

Both companies lease private long-distance phone lines to corporate, institutional and government clients. These "tie lines," carrying voice and data, are the most profitable of Bell's services, especially on the high-traffic routes between major cities. Until January 1972, Bell had a monopoly on tie lines; then MCI inaugurated a microwave relay network, offering the same service at lower prices. For example five AT&T lines between Chicago and St. Louis cost around $2,500 a month; five MCI lines cost between $95 and $255 a month less.

The Threat.

Bell officials protest that price competition is not only unjust, but also a threat to the entire monopoly system that has put telephones in 94% of American homes. Only by charging tieline customers somewhat more than the service actually costs to provide, they contend, can AT&T hold down rates to users of its standard services. Federal regulators, they argue, should not permit its rates to be undercut by MCI, which has no obligation to maintain unprofitable service in rural communities, as Bell does. MCI executives reply simply that prices should reflect the cost of providing service: costly services should be expensive, and inexpensive services should be cheap.

What really exasperates Bell executives is that MCI plans to plug its long-distance customers into Bell's local systems. An MCI client in New York will be able to list and use a Chicago telephone number without having an office there. He could call any number in Chicago, and Chicagoans could call him in New York with Bell collecting only for the local service. AT&T refused to provide that service, so MCI petitioned the federal district court in Philadelphia, and won. Had MCI lost, AT&T could have nipped the growing competition in the bud: fewer clients would pay for MCI lines if they could phone only their own offices in other cities. AT&T then attempted to delay further court orders that it grant MCI its services. Last week the Third Circuit Court of Appeals rejected A T & T's request. Bell plans to carry on the legal fight, but meanwhile, MCI--and at least two dozen similar tieline specialists--seem likely to grow into something more than gnats.

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