Baby Bells Cry Foul, but Are They Crying Wolf?

Typically, the Bells' slice of any given long-distance market, once they gain regulatory approval to offer service, has been believed to hover in the 20% to 30% range, says Insight Research Corp.'s Bob Rosenberg.

"The benefits more than make up for losses from UNE-P, at least at the revenue line," says Hodulik, who expects the margins will also catch up as the Bells add more long-distance customers.

An SBC spokesman begs to differ, saying the gain of long-distance customers "doesn't even come close" to making up for the loss of higher-margin local customers. He says the company needs about five long-distance subscribers to compensate for the loss of one local account, and that the company loses $20 of revenue per month for each lost local account.

Self-Service

The Bells also argue that they are seeing significant flight of their local phone traffic and customers to wireless services. But what they neglect to point out is that much of that traffic and many of those customers are simply migrating to another side of the same business. Two of the largest wireless service providers -- Cingular and Verizon -- are owned by the Bells.

The Bells certainly face some challenges when it comes to network-sharing, but for the most part their complaints amount to "self-serving arguments," says Insight's Rosenberg.

Indeed, some of the best work the Bells have done lately hasn't come from sweeping technological innovation or groundbreaking efforts in customer care. Their real strength has been the defense of their markets, say analysts.

Perhaps the best proof of that may have come in the six years since the passage of the telecom act. That conflict-plagued body of law sought to stimulate competition by, among other things, giving rival phone companies access to the regional Bells' monopoly. Thanks to countless appeals and fortunes spent on lobbying, the Bells have succeeded in delaying any meaningful competition until this year.

"The whole deregulation process has been in works for a while, but it's starting to have a growing impact on the Bells," says UBS' Hodulik. "I think it's clear now that their strategy is to try head it off from the regulatory angle before the pain becomes too great."