J.R. (Jim) Donnelly, director of external relations for Ameritech’s Peoria area operations, started out as an installer/repairman with Illinois Bell in 1957. Throughout his career he has worked in a number of technical positions, including central office technician and installation foreman, as well as in Illinois Bell’s business office and as multifunctional manager in Illinois Bell’s Canton, Illinois, office. Jim was promoted to director of external relations in the Peoria office at the time of the divestiture of the “Baby Bell” telephone companies from AT&T in 1984. Today, Illinois Bell is known by the name Ameritech, the parent company for the Bell companies in Illinois, Indiana, Michigan, Ohio and Wisconsin.
Jim has an ideal background to deal with the many challenges and issues faced in his position – dealing with customers, municipalities and the news media. It would be rare for him to get involved with a particular repair problem today, but he would still be consulted in the event of a major service problem. Currently, his primary focus is helping the public understand Ameritech’s vision and capabilities in new area of telecommunications.
There is quite a bit of confusion today about phone service, with local service companies, long distance operations, cellular service, etc. Can you give us a general overview of local phone service today?
In the states of Illinois, for example, there are numerous local phone companies. Some of them are individually owned such as (locally) the Metamora Telephone Company and the Glasford Telephone Company. Ameritech provides local telephone service for Peoria and much of the surrounding area. GTE is also a major telecommunications company in Illinois, serving areas adjacent to our Peoria community service area.
It is still confusing to many people. Because we were Illinois Bell, some customers believe that Ameritech us still somehow tied to AT&T, which is not true at all. In January 1984, the old Bell companies were broken into seven regional companies across the United States. AT&T was Illinois Bell’s parent company prior to divestiture of the “Baby Bells.” Currently, five states make up the Ameritech region: Illinois, Indiana, Michigan, Wisconsin and Ohio. Our rate structure and services are regulated by the Illinois Commerce Commission.
In addition to local phone companies, there are the intensely competitive long distance carriers. How is the long-distance industry shaping up?
That’s a very timely question. Long distance carriers are still necessary when calling out of the local service area. That is where companies like AT&T, MCI and Sprint (the major long distance carriers) come in. There are a number of other smaller companies, however, that are also supplying long distance phone services.
Since divestiture in the mid-eighties, many smaller long distance companies have been able to lease lines from the major long distance companies and still make money. The latest figure I heard was that long distance rates have dropped almost fifty percent since divestiture. I think that will continue; it’s a very competitive market. Ameritech currently has two proposals pending in Washington to permit us to provide long distance service. One of those would make Illinois a trial state for letting a local Bell company enter the long distance market.
MCI recently announced that it will begin providing local phone service in addition to long distance service, something that it is not prohibited from doing under FCC regulations. Ameritech believes it is only fair to see FCC regulations changed to allow it to begin providing long distance service, correct?
That’s right. We have a proposal right now before the Federal Communications Commission that we cal Customer First. Under that proposal, we would unbundled our entire Ameritech network – open up the entire network to competition, so any telecommunications company could provide local phone service within the areas in which we operate.
Since we are agreeable to open up our local service areas to competition, we are also asking for the opportunity to be able to provide long distance service. We also have recently asked for a pilot program to trial long distance service for our Illinois customers. We already have the facilities in place to be able to provide this within the state. We feel this will give the Federal Communications Commission an opportunity to take a look at the results of such a change for a trial period within Illinois. If they would concur that it does not cause some of the concerns indicated by some of the long distance companies, we could go ahead and implement long distance service in other areas.
Is the contention of your potential long distance competitors that you would have an unfair advantage because of your local phone service infrastructure? How do you respond to such objections concerning Ameritech entering the long distance market?
There are two points to remember. First, when we were prohibited from providing long distance services in 1984, the federal court said we should not be allowed into that business until there was no threat that we would dominate it. When you look at a company like AT&T and the other entrenched providers of long distance, we don’t see how anyone can believe we’ll walk in and capture an entire market. Secondly, remember that our Customer First plan represents the first proposal by a former Bell company to open our local networks to easy interconnection with other companies who want to provide local phone service. We recognize that this extra step to promote local competition should be taken as part of our getting into long distance.
It’s interesting to note that AT&T is buying a major portion of McCaw Cellular which will give them access to the local market through cellular service. And MCI wants competition to work in just one direction. They want to protect their long distance markets from competitors while expanding their horizons into local service. We’re saying that we see what the future holds, and we want to step up to the table and prepare our company for that future. We are doing so with our proposal at the federal level. We are agreeing to open up our entire network. What we want out of it is the permission to provide long distance service. That’s why we are seeking changes at the state and federal levels.
It’s interesting that a company like MCI, which just made the announcement that they want to provide local service, is adamant about wanting to keep us out of the long distance market. Ameritech is being inundated with competition from smaller phone companies – not so much in the Peoria areas as in Chicago, for example. We welcome the competition, but we don’t’ want to have to operate with one arm tied behind our back insofar as regulation is concerned. The regulation has to change to be able to allow us to compete fairly with the competition that is coming at us. We are really asking for a fair and equal playing field so that we can meet our competition of the future. Because of the divestiture from AT&T, we face regulations that are not faced by other companies.
Today we provide long distance carriers with several trunks connecting our central offices to their equipment so customers have the choice of selecting any long distance company. We could do the same thing with telecommunications companies that might want to provide local service. Then customers would be able to select local phone service similar to the way their selected long distance carriers a few years ago. Just as we’ve seen long distance costs go down by 50 percent since divestiture, competition in the marketplace can drive costs down.
How do the cable companies fit into this whole scenario? Aren’t they also after a share of the local phone service market?
The biggest cable company in the country – TCI – is aggressively moving in that direction in partnership with Bell Atlantic. I anticipate that local cable companies will be providing phone service in the future. Since cable companies already have cable in place, they could provide phone service without the trunking from our offices to access customers. Again, we look for cable’s coming into our business. Fine. But federal law now prohibits us from providing cable in an area where we also provide local telephone service. So, Ameritech has filed in the Illinois courts, as well as in Michigan, to be able to provide cable services as well.
In addition to lobbying for changes at the federal level, Ameritech is seeking some changes at the state level. What are you proposing for Illinois?
At the state level, our proposal is called Advantage Illinois. We have been on rate-of-return regulation since back in the 1920s; we are still operating under that same type of regulation today. Under that concept, our company goes before the Illinois Commerce Commission and lays out what it costs to provide service to our customers. Then the Commission either agrees, disagrees, or makes an adjustment, and subsequently sets a cap on our earnings in lieu of competition. Historically, this “agreement” was part of a monopoly to operate within a particular community such as Peoria.
Traditional regulation was designed decades ago to protect consumers when the phone company was a monopoly. That regulation system is outdated today because of growing competition in the industry. Ameritech is asking the ICC to update the way telecommunications companies are regulated and encourage Ameritech to compete with other information businesses as we all build a super highway system of information networks for the future. The change will allow Ameritech to assume the risks and the rewards of competition. Ameritech needs to be free to take the same business risks that other companies take.
With new technologies and the competition that has entered the marketplace, we need to operate under alternative regulation that would give us the pricing flexibility to meet the competition that has already established itself within the marketplace. Today there are companies with fiber-cable in tunnels in Chicago that are taking business customers away from our company, bypassing the local network. Most of those companies are coming at us in the business rather than the residential market, but like any other new development in our industry, they’ll spread to the home markets too.
What exactly does Advantage Illinois propose?
Advantage Illinois proposes freezing residential phone rates at current levels until 1997. Other rates (as well as basic rates beginning in 1997) would be capped by a formula which guarantees that changes in overall phone rates will always remain below inflation. In addition, the current seventy-three-cent charge for touch-tone service would be phased out over three years and eliminated by 1997. That would translate into a $35 million rate cut over the three years.
Under Advantage Illinois, we are asking that company earnings – now subject to a ceiling imposed by regulators – be permitted to rise and fall based on our marketplace successes and our management efficiency. Ameritech will respond to the plan’s challenge and opportunity to grow our business through innovation and efficiency by spending $3 billion over the next five years to expand and modernize the Ameritech network in Illinois.
This price regulation, as opposed to regulating earnings, will stimulate greater investment new Information Age services. Price regulation will encourage the development of new communications services that will improve the quality of life in Illinois and help Illinois develop information networks sooner. Many industries are building an infrastructure of information networks to take Illinois into the Information Age. This network is made up of several other information networks such as cable television; cellular, microwave and other wireless services; private business networks; fiber optics; and telephone lines. Ameritech is asking the Illinois Commerce Commission to change how it is regulated to ensure that it, too, can fully participate in developing this network of networks for the future.
Sometimes these networks will be in direct competition, while sometimes they will interconnect and work together. As difference companies fully develop their communications networks, consumers will win a wider variety of services from which to choose, at competitive prices.
When will we know if Advantage Illinois will be approved?
We need to be developing these things very quickly. We have already had the public hearings through the Illinois Commerce Commission. We are anticipating a final order from the commission sometime in April. It’s key to our future and our customers’ futures.
Illinois lawmakers have already established the groundwork for price regulations for telecommunications companies by amending the Illinois Public Utilities Act. The amendment gives the ICC authority to consider non-traditional ways of regulating telecommunications companies.
How will such developments impact the local business community?
I think, when you look at the Peoria area, we really have excellent technology. All of our central offices in the Peoria have the latest state-of-the-art digital technology. We are also placing fiber-optic cables so we will be prepared to meet the future needs of our businesses. It’s very important for out company to make sure area businesses have the telecommunications resources they will need for the future. As our local businesses grow, our company will grow. We will add the additional data lines; we will add the video-conferencing networks of the future.
There are a number of states trying to attract businesses away from Illinois and the Peoria area. Some states are using their telecommunications infrastructure as an attraction. That’s why it is important that we get on with the business of approval for Advantage Illinois very quickly. We need to continue putting the infrastructure in place for our businesses to be able to have the latest state-of-the-art technology. That will help attract new businesses and jobs to the state in addition to retaining the jobs that are already here.
As far as economic development is concerned, as long as we provide the latest technology, companies will continue to be able to locate in Peoria and some of the surrounding smaller communities where the quality of life is favorable, because they will have the telecommunication infrastructure that they need to do business in today’s world.
What has the changes from Illinois Bell to Ameritech meant to your company?
It addition to changing our name and logo from Illinois Bell to Ameritech, we are also changing the internal operation of our entire company. As of January 1, 1994, the company operated through eleven business units. The old company, Illinois Bell, operated around departments such as installation and maintenance, switching, operator services, business offices, etc; and each department was organized separately in each of Ameritech’s five states. We now function through business units, like Ameritech Customer Services which handles from 10.8 million residential customers. The customer is at the center of that business group. We are trying to meet and exceed the needs of our customers in providing quality service. When is comes to customers selecting their local phone company in the future, we want to be known as a quality company, so customers will select Ameritech.
Another business group we have formed is Ameritech Custom Business Services, representing approximately 200 of Ameritech’s largest customers which typically have 5000 or more lines. Ameritech Enhanced Business Services represents about 87,000 businesses averaging more than 20 lines. Ameritech Small Business Services represents about one million small business customers. We want to be able to take care of our customers, through these business groups, on an individual basis from the minute that they call in.
Other business groups include Ameritech Cellular Services, Advertising Services, Information Services, Leasing Services, Long Distance Industry Services, Network Services, Pay Phone Services and Telephone Industry Services.
Are the other six regional “Baby Bell” companies seeking regulation changes to get into the new business areas that Ameritech is looking at?
I can’t speak for the other regional companies, but they aren’t pursuing everything that Ameritech is pursuing. None of the other companies, to my knowledge, have proposed what we are proposing to the Federal Communications Commission. We are the only region that is proposing opening up our entire networks for competition. Some of the other companies would probably not want to open up their entire network.
Our company’s vision for the future recognizes that there is going to be intense competition. We want to make the necessary changes so when the competition really comes our way, we will be prepared to meet it.
Some regional phone companies have struck alliances with cable companies and entertainment companies in preparation for what has become known as interactive communications. The battle between QVC and Viacom for Paramount has raised the level of public awareness about interactivity. How do you view the whole idea of interactivity and the information superhighway?
Certainly America is talking about the concept of interactivity via television and computers. Right now we are seeing many of the regional companies making investments in cable companies – significant investments. Ameritech has really stayed with what we know best insofar as telecommunications, although we are making some moves that would allow us access to cable television in the future.
We have, within the Ameritech region right now, a number of trial interactive projects in place. One, in telemedicine, ties the Carle Clinic in Urbana to two outlying locations in Monticello and in Paris. This is a two-way, fully interactive video network, so that doctors at the remote locations can talk with specialists at Urbana. They can both look at x-rays and blood samples. There is an electronic stethoscope which allows a doctor in Urbana to listen to the heart of a patient in Monticello or Paris. It will be used for nursing education as well.
What is Ameritech doing with interactive communication in the field of education?
In education a number of trials were put in place in 1993. One of them links Waubonsee Community College in the Chicago suburbs to other community colleges and a university. We are linking Lewis and Clark Community College to two major businesses for training and retraining of their workforces.
We are looking at another trial involving Illinois Central College. Part of that is already in place with the downtown Peoria campus being linked to the East Peoria campus. Hopefully, in the near future, we will be adding some high schools to that network. So, for example, a calculus course at ICC could be brought to rural high schools. Students would be able to interact through full-motion video to an instructor in East Peoria, and the instructor would be able to interact with the students as cameras could zoom in on the students with questions. It is really the wave of the future in education.
Senior citizens will also benefit greatly by interaction. In many cases, in the future, senior citizens may not even have to leave home to get essential services. Doctors will be able to monitor seniors from hospitals or offices.
The information superhighway concept has been a focal point of the Clinton administration. How will this information superhighway come about?
The information superhighway that everyone is talking about will be made up of a number of networks, phone companies, cellular companies, wireless technology companies, microwave technology companies, etc.
I certainly concur with the comments of Vice President Gore who has emphasized that some of the regulations on the private sector must be removed so we can get about putting in this superhighway for the future, to provide the services I’ve mentioned in education, healthcare and economic development.
The federal government cannot build the information highway – it’s impossible. If we can get some of the restrictions on phone companies removed across the United States, these networks can be put in place. If companies like Ameritech are allowed to expand into long distance service, it will provide the incentive to invest in technology and put this superhighway in place much faster than it would otherwise occur. If we continue on with the same kinds of regulations at the state and federal levels, it will take years before we see significant changes. There are a number of bills pending at the federal level that would grant the needed flexibility. It would be advantageous to businesses if we had the flexibility to help put the superhighway in place.
How will the development of the information superhighway affect the existing phone companies?
In information services, partnering among companies will be common, as some of the regional companies are already doing. Phone companies will also be able to come out with some new technologies and services from our central offices, similar to Caller ID which was recently implemented, or voice messaging services which are now being introduced.
Back in the 1970s we heard that many technologies like the TV-phone and video conferencing would be commonplace by 1990. Why didn’t’ these technologies materialize on a large scale? Will many of the interactive technologies we are hearing so much about today also be slow to catch on?
We came out with our picture phone years ago and thought the market was read for that type of service and that wasn’t the case at all. With the technology in place now, we will see such devices catch on more rapidly. The business sector will always utilize the new technologies sooner than consumers at large. The reason that business are looking so closely at new interactive communications is because of the cost of business trips. When you add up the costs of travel and the time wasted in travel., a teleconferencing network makes a lot of sense. And it is becoming more cost-effective.
The doctors at Carle Clinic in Urbana, for example, are saving hours of travel to the remote clinics because of telemedicine. The same would hold true for the business community at large.
You have been involved heavily in Peoria are economic development, the Peoria Area Chamber of Commerce and numerous areas of Peoria business. What is your overall view of the area economy and business?
I do serve on the board of the Economic Development Council for the Peoria Area. I feel very positive about Peoria, especially with NAFTA and the impact it will have on Caterpillar. Caterpillar will certainly continue to be a major player in our community. We’re very fortunate to have some very fine manufacturers in the Peoria area.
I think we are beginning to concentrate more on the well-being of our existing business in the Peoria area, and that’s crucial. Any reports that I have seen involving economic development always state that 80 percent of growth is going to come from existing businesses. We need to do everything we can to assist our existing small businesses. We need to make is easy to do business in Peoria. If there are roadblocks from the city in areas such as zoning, we should step forward to work with the city to resolve these issues. That’s crucial to our future.
When I served as president of the Peoria Area Chamber of Commerce two years ago, we worked specifically with the city to make sure they understood and began to resolve from of the roadblocks to development related to red tape and bureaucracy; we got a lot of cooperation from the various departments. I think the mayor is doing everything he can to assist the private sector in beginning to remove those roadblocks. There have been significant improvements. IBI
