In years gone by, there was nothing more solid, more predictable and more deadly dull than the telephone company.
Today, all bets are off. Illinois Bell Telephone Co. is no longer a utility; it has to be categorized as a high-tech firm in a marketplace that has begun a somewhat stately but definite march toward competition.
”We aren`t often perceived as `high-tech,` but that`s the only word for this business,” said Bell President Ormand Wade in a recent interview.
In 1986, Illinois Bell estimates that it will spend 50 percent of its $660 million capital expenditures budget on fiber optic transmission cables and digital switching equipment.
These new technologies, described as the first steps in the network of the future, will improve the transmission of large amounts of voice and data and require little maintenance.
For years, Illinois Bell has had the reputation of leading the rest of the Bells in new technology, ranging from mobile phones to fiber optics. It`s a title the company still likes to claim.
(Though they are separate entities, the Bells keep a jealous eye on each other`s progress–probably even more so now than before the system was broken up.)
Wade is proud that Illinois Bell is the first in the nation again, this time trying out the Integrated Services Digital Network in a project for McDonalds in Oak Brook.
ISDN is a universal standard for simultaneous voice and data communications that would allow a wide range of services, including slow motion video and videotex, over telephone lines.
”Working with such new technologies is not without pain. They always say that when you`re on the leading edge, you`re on the bleeding edge,” said Wade. ”Our ISDN project is behind schedule right now because of software difficulties. That`s part of the price you pay.
”But the advantages of being a trial location are there, too. You learn about the new technology and your engineers learn it. You can anticipate what the start-up problems are going to be. It`s a tradeoff well worth making.”
In the meantime, Illinois Bell has signed up the University of Illinois and Sears, Roebuck & Co. for its sophisticated Integrated Information Network, a multifeatured customized service often described as a preliminary step toward ISDN.
The $30 million network for the U. of I. will tie together four sites before the end of this year. In addition to the Urbana and Chicago campuses, the network will hook up the medical schools in Rockford and Peoria.
It will be financed over 10 years, with the financing costs paid for by user fees.
University officials, noting that phone service costs have been increasing at an 8 percent annual rate in recent years, said they expect the system to save $20 million over the next decade.
Last fall, Illinois Bell became the first Bell operating company to offer microwave service on a trial basis to customers who want to transmit data.
A six-month trial of the new service began in Rockford, where two customers began sending high volumes of data on demand to company branches. Setting up such a microwave transmission system can be accomplished in a matter of days.
Originally, such service was created by competitors of the Bells to bypass local phone companies.
”But we grabbed it and are using it ourselves,” said a Bell spokesman when the service began.
But high-tech glitz aside, Illinois Bell is a phone company that primarily provides local service.
Some critics charge that the changing face of the telecommunications industry has led Illinois Bell and the other Ameritech companies to lavish more and more time and attention on lucrative big business customers at the expense of residential customers.
”We feel they (Illinois Bell) are focusing more on making services and prices more attractive to business customers so the company will be poised to handle competition in that market in future years,” said Susan Stewart, executive director of the Citizens Utility Board.
Wade said he is eager to dispel the idea that Illinois Bell is not interested in residential customers.
He said competition for providing a dial tone to customers in an individual telephone exchange, allowed by new telecommunications legislation after 1989, is not likely to be hot and heavy.
On the other hand, Wade said Illinois Bell does not rule out such competition as new technologies that don`t require the duplication of the installed network, such as cellular systems, develop.
Though local residential customers are not likely to get a chance to choose a competing telephone company soon, Illinois Bell still cares about them–even if it spends most its advertising dollars to woo the business customer, Wade said.
”The residential customer is crucially important to us. Fifty percent of our entire revenue stream comes from that segment. There`s not the same degree of technological development focused on that market, but we`re working on changing that,” said Wade.
”In many ways, residential users benefit from the business features we develop as we learn to bring them to a smaller environment,” he said. The features will include distinctive ringing, call screening and interactive public announcements over phone lines.
He said current services take advantage of the directory databases such as crisscross service on names, addresses and phone numbers. But the Bells are restricted from providing such enhanced services under the break-up.
A controversial change in Illinois Bell`s local rate structures is expected to receive Illinois Commerce Commission approval in June.
The proposal plays out a theme that has become common among telephone carriers in the post-divestiture world: Pricing services closer to costs so competition can be the determining factor in the marketplace.
The restructuring proposal would provide no new revenue for Illinois Bell, which Wade said indicates the importance the company places on cost-based service.
The $30 million in reduced residential revenue under the restructuring would be offset an increase in private line fees.
The basic design of the new plan is to move toward measured service, which bases the charge for each call on the duration of the call, distance and time of day.
However, after a tumultuous public reaction and on the advice of a number of consumer groups, the plan was revised and an alternative proposal presented to the ICC in January.
Under the new plan, measured service would apply only to calls made outside an eight-mile radius of the caller`s location. Calls in that area would count only for one message unit, no matter how long they last.
Message-unit pricing would be used for all calls in northeastern Illinois, and volume discounts would take effect automatically. There also would be discounts after 9 p.m. The net result is that monthly bills in the city are likely to increase $1.15 and those in the suburbs are likely to go down $1.
The changes were prompted in part by a study that showed 54 percent of people who live in Chicago and 78 percent of suburbanites make phone calls only within the immediate area where they live.
”If we could start from scratch and design the structure we wanted, it wouldn`t look like this,” said CUB director Stewart. ”But within the framework we had to work in, the alternative proposal is much better than the original.
”A lot of consumers don`t like the concept of measured service because they frequently get put on hold and have no control over the length of their calls,” she said.
”Under the revised plan, the size of the local area for single-unit calls has been expanded. We also got rid of some of the artificial barriers between exchanges as well as the Call Paks, which usually resulted in consumers paying for more service than they were using over several months`
time.
”The automatic volume discounts take a lot of the guesswork out of picking the right service.”
Some business groups expressed reservations about the changes because they said the loss of discounts will strike heavily against such firms as telephone answering services and burglar alarm companies.
Such companies, as well as certain government agencies and police and fire departments, filed comments with the ICC about the proposal, detailing their doubts.
For 1985, Illinois Bell, which accounts for one-third of Ameritech`s revenue and income, showed a decrease in net income to $298.2 million from $308.5 million in 1984.
That`s not typical for a Bell company these days. Among the reasons were costs associated with an early retirement and separation plan offered at the end of 1985 to pare the staff.
Such cost-conscious pruning, while painful, was needed because of increasing competitive pressures, including ”bypass networks” that offer an alternative to local telephone service, Wade told workers in November.
Illinois Bell offered incentives for up to 900 white-collar workers among its 23,000 employees to take a lump-sum separation payment of 75 percent of their annual salary plus two months of benefits.
Before the cutbacks and retirements, officials said Illinois Bell was operating with roughly 50 employees for each 10,000 telephone lines, one of the lowest employee rates of any Bell operating company.
Also affecting 1985 profits was a change in depreciation rates that increased expenses.
”We need depreciation lives for our plants and equipment that are in line with the short life spans of our high-tech equipment, which rapidly becomes obsolete,” Wade said. He pointed to 25- to 50-year depreciation schedules that have been in place for years.
Illinois Bell is near the top of the industry when it comes to increasing depreciation rates and building total depreciation reserves, the amount recovered to date on the cost of plants in service.
”The change (which was approved by the Federal Communications Commission and the ICC) didn`t do much for our 1985 income, but we feel that it improves the quality of our earnings. A company with proper capital recovery is healthier in the long run,” Wade said.
Though Illinois Bell is moving in the direction Wade wants, he, like most of the players entering a competitive marketplace from a regulated industry, said changes aren`t fast enough.
”We have the capacity to be an effective competitor, and the public will be better served when that happens. Our frustration quotient around here is still fairly high,” he said.
