By Paul Farhi
Washington Post Staff Writer
Wednesday, July 16, 1997; Page C11

Frustrated over the lack of progress in opening up the nation's telecommunications markets to competition, the nation's top telephone overseers said yesterday they want to investigate the problem.

Sen. John McCain (R-Ariz.), chairman of the powerful Commerce Committee, and the Federal Communications Commission both said they will launch separate inquiries into what's wrong and what can be done about it.

Nearly 18 months after Congress passed the Telecommunications Act of 1996, it's clear that consumers have seen little of the competitive frenzy that lawmakers said would result from allowing local and long-distance phone companies and cable TV companies to enter one another's businesses. In fact, the opposite has happened: Local phone and cable rates have continued to rise, while would-be telephone competitors have merged rather than fought.

What's not clear is who, or what, is to blame. Both sides of the phone industry continue to point fingers at the other, and some argue that the government itself is responsible for the stalemate.

Long-distance companies such as AT&T Corp. and MCI Communications Corp. accuse the regional Bell companies of failing to open their local networks to companies that want to use the lines to provide a competing dial tone, as the law requires. Would-be local competitors need to piggyback on those lines to avoid the prohibitive expense of building duplicate local networks.

Last week, MCI said it expects its new local phone division to lose about $800 million this year, and still more next year, partly because of what MCI termed "anti-competitive tactics" by local phone companies. At the same time, MCI said it expects its long-distance revenue to fall about 10 percent below expectations in the next 18 months because of intensifying price competition.

The Bells, which hold regional monopolies, say they have been as hospitable to competitors as possible. They also complain that the FCC has placed too many regulatory barriers in front of their efforts to enter the long-distance market.

The Bells say that long-distance companies don't really want to get into the $100 billion local phone market anyway, since doing so would make the deep-pocketed Bells eligible to enter the $70 billion long-distance business that AT&T, MCI and Sprint dominate.

"If anyone is having a real problem [entering a local market], we will rectify it," BellSouth Corp. spokesman John Schneidawind said yesterday. "But most of these problems are baloney. As long as [long-distance companies] keep crying fire in a crowded theater, we'll be kept from seeing the movie -- we'll be kept out of long distance."

Responds AT&T's Mark Rosenblum: "It's a natural tendency of monopolists to want to hold on to their monopolies as long as possible."

McCain, whose committee holds sway over the telecommunications sector, said he will hold hearings to focus public attention on the problem.

"We'll try to build a case that the promise of the Telecommunications Act has not come to fruition," said McCain, who has long maintained that the law wasn't sufficiently deregulatory to promote competition faster. But McCain added that it was unlikely Congress would make changes in the law soon.

The FCC announced yesterday it will create a task force of commission employees to "identify trouble spots" and investigate actions that may be delaying competition. The task force appears to have been prompted by complaints made to the FCC in the past two weeks by AT&T and MCI.

Indeed, the agency yesterday singled out the local phone market as the primary target of its investigative actions, which officials said could lead to new rules to tighten any loopholes in existing regulations.