Among the companies hoping to build businesses on the information superhighway, Microsoft Corp. and AT&T Corp. have garnered much of the attention lately because of their potential for setting the terms for electronic banking and other types of interactive services.

But many experts believe the regional Bell operating companies - known as RBOCs - could prove as important as any participants in the anticipated remote banking revolution.

These seven companies, the offspring of the 1984 breakup of Ma Bell, pose a significant competitive threat to the banking industry in that they have deep pockets, core skills in transaction processing, and a natural affinity for home banking and other remote information services.

At the same time, the RBOCs as a group are open to partnerships with banks, to guide them onto the information superhighway and the business opportunities on it.

Over the next few years, experts say, financial institutions' dealings with the RBOCs could serve as a significant indicator of whether banks and nonbanks will proceed as friends or foes.

"We view our role as being a partner with banks," said Frank Mona, statewide team leader in Pacific Bell's financial services area.

"We're not looking to get into their business," said Robert Baublitz, manager of home-based services for Bell Atlantic Corp., based in Arlington, Va. "For the bank that doesn't want to be the phone company, we're happy to be that for them, and hopefully they'll be the bank for us."

Each of the RBOCs believes that home banking programs can serve as platforms on which banking and telephone services can be used to promote one another.

For instance, by working with financial institutions to create banking services for screen-based telephones, the RBOCs believe they are easing the way for value-added phone services, such as call waiting and caller identification. Such services are good revenue producers for the phone companies.

However, many believe that the revenues gained from these types of endeavors will not satisfy the RBOCs forever.

Several observers pointed out that investments in fiber-optic networks and other new technologies are leading to increased earnings pressure at many of the regional companies.

Eventually, the reasoning goes, they will be looking for better ways to leverage their investments in those technologies, and home banking offers tremendous upside potential.

Some of the RBOCs, such as Southwestern Bell, are already using fiber- optic lines in testing interactive television services that will likely include banking.

But the real point of concern for bankers should be transaction processing.

Though none of the RBOCs have publicly stated an intention to process or manage home banking transactions, one veteran of the telecommunications industry believes they have every intention of getting into that business.

"The telecommunications industry does not want to be in the receivables management business - they don't want all these major assets hitting their balance sheet," said William F. Keenan, senior vice president of marketing at National Westminster Bancorp, Jersey City. "But they definitely want to be in the transaction management business."

Mr. Keenan, formerly managing director of card services for US West, noted that such businesses make sense for the RBOCs because they have much experience at handling large numbers of small-value transactions.

He concurred that the RBOCs are open to partnering with the financial community right now, but added that earnings pressures are driving them to take a hard look at the banking transaction business for the first time.

Though financial institutions may not know it, they are contributing to the earnings squeeze at the RBOCs.

Many of the point of sale card terminals that banks place at merchants dial around RBOCs' local networks and send transactions to processors through long-distance carriers.

In addition, the card associations owned by the banks are routing call volume away from the RBOCs by adding calling-card features to credit cards through Sprint Corp. and MCI Communications.

As their call bases erode, the RBOCs will look for other sources of income, and the undeveloped nature of the home banking landscape renders it a likely place for the RBOCs to build new homes.

Experts believe it would be unwise for bankers to ignore the RBOCs, but it would be equally foolish to try to cut them off from the revenues generated by home banking.

"If it reaches a point of critical mass in terms of earnings impact, these companies will think nothing of investing very heavily in developing their own proprietary payment systems brands," said Mr. Keenan.

Such a scenario would be "nightmarish for the banking industry, which is working desperately to keep its status as an integral part of the average consumer's life," noted one banker at a recent industry conference.

As was mentioned earlier, the RBOCs have deep pockets and better brand recognition than most banks in their regions. In addition, they have direct access to millions of consumers in their homes.

Moreover, the RBOCs' control of nearly 200,000 pay phones each gives them a ready-made point of entry into the smart card market, which many bankers believe will grow rapidly in the coming years.

Pay phones could be upgraded to place electronic cash on a smart card's computer chip, thereby reducing consumer reliance on automated teller machines.

The RBOCs' control of phone lines also means that they would have a hand in many computer-based banking services.

Though the RBOCs pose a significant potential threat, experts said it is important to recognize the fact that bankers are still, for the most part, in the driver's seat.

Rather than trying to shut the RBOCs out of home banking, the banking industry needs to take advantage of the fact that the phone companies are eager to catch a ride on the services banks will provide to their customers.

To do this, they will need to decide how to divide home banking revenues in a way that will satisfy the RBOCs. But the decisions must be made soon.

"The window for partnering will close in the next three years," said Mr. Keenan.

"Banking is now on the radar screen of every RBOC. One or two more years of those earnings hits, all bets are off."

One way or the other, the RBOCs are likely to get into banking's car as it travels on the information superhighway. Will they be friends or foes? The answer lies with the banking industry.

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