Freed by Ruling, Baby Bells Seen as Tough Competitors

A judge's decision clearing the way for regional Bell telephone companies to provide information services will inaugurate a potent competitive threat to banks, industry observers said.

Last Thursday, federal Judge Harold Greene reluctantly decided to let the Baby Bell companies, formed by the breakup of American Telephone and Telegraph Co., offer information services such as electronic Yellow Pages or home banking.

Some banks will continue to pursue the battle through legal and legislative means, lawyers predicted. But they also believe the Baby Bells will ultimately be allowed to offer some form of information services - although there may be some restrictions on how they can make these offers.

Spotlight Shifts to Congress

"This decision is going to reset the stage," said John F. Lee, president of the New York Clearing House Association. "There are a multitude of places where this decision could affect electronic banking."

And if local telephone companies offer information services, banks will have difficulty competing in that arena, observers said. Banks lack a critical capability the Bell companies have - knowledge of their customers' calling patterns and business relationships.

The focus will now shift to Congress. Although the decision will also be appealed in court, it is unlikely that a higher court would reverse Judge Greene's decision, attorneys said.

Legislation may be introduced in the House in September that would put stringent restrictions on the regional Bells. This bill would be sponsored by Rep. Edward J. Markey, D-Mass., who heads the telecommunications and finance subcommittee of Energy and Commerce.

Watchers and Fighters

While the majority of banks have remained on the sidelines in this battle, a handful of big financial services companies, including Citicorp and American Express Corp., have been actively lobbying for several years against greater freedoms for the Bell companies.

"Many banks are actively involved in information processing, and those activities will run right into the ramifications of this order," said Brain Moir, an attorney with Fisher, Wayland who represents the International Communications Association, a lobbying group for big telecommunications users.

The Bells may begin to compete with banks in areas such as home banking and funds-transfer products. Several of the Bell companies already offer financial services, including affinity credit cards.

"The strategy of banks must be to make sure that once the Bells come into the business they can't take advantage of the fact that they own the public network," said Ellen G. Block, an attorney with the Washington firm of Morrison and Foerster, which represents the New York Clearing House Association.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.