SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
Date of Report: April 19, 1995
PACIFIC TELESIS GROUP
A Nevada Commission File I.R.S. Employer
Corporation No. 1-8609 No. 94-2919931
130 Kearny Street, San Francisco, California 94108
Telephone Number (415) 394-3000
<PAGE>
Form 8-K Pacific Telesis Group
April 19, 1995
Item 5. Other Events
- --------------------
As previously reported, commencing January 1, 1995 the California Public
Utilities Commission ("CPUC") allowed long-distance and other
telecommunications companies to officially compete with Pacific Bell (the
"Company") and other local telephone companies in providing intra-service area
toll call services in California. (Toll calls are calls within a customer's
service area but beyond the local calling area.) Currently toll service
revenues represent approximately 14% of Pacific Bell's total operating
revenues. In addition, the CPUC intends to open local exchange markets to
competition by January 1, 1997. (See the more complete description in Pacific
Telesis Group's (the "Corporation's") Form 10-K for 1994 and the 1995 Proxy
Statement containing the Corporation's 1994 Consolidated Financial
Statements.) Currently local exchange service revenues represent
approximately 42% of Pacific Bell's total operating revenues.
On April 19, 1995, the Corporation reported first quarter 1995 earnings from
continuing operations of $282 million, or 67 cents per share, the same as
first quarter 1994. Revenues from continuing operations in the first quarter
of 1995 totaled $2.25 billion, 1.7% lower than the $2.29 billion of a year
ago. The decrease resulted primarily from price changes that accompanied new
toll-call competition and from revenue reductions mandated by the CPUC.
Revenues from Pacific Bell toll calls declined by about 36% compared to first
quarter 1994. (Pacific Bell has experienced toll revenue loss (particularly
in WATS and 800 services) for many years prior to "official" toll competition
that began January 1, 1995.) Average toll market share loss during the first
quarter of 1995 was 5%. In addition, toll volume growth due to lower prices
during the quarter occurred more slowly than projected by the CPUC. (First
quarter 1995 results will be described in more detail in the Corporation's
Form 10-Q for the first quarter of 1995.) While it is still too early to draw
conclusions, the Corporation believes that the continuation of slower-than-
expected demand growth combined with the competitive price changes mentioned
above may result in 1995 earnings being lower than 1994 earnings.
In connection with the CPUC's consideration of appropriate rules and
structures for local exchange competition, Pacific Bell has developed and is
submitting to the CPUC certain information which indicates Pacific Bell's
vulnerability to competition should the rules adopted by the CPUC not be fair
and even-handed. Among the information developed is the following:
Pacific Bell's business and residence revenues and profitability are highly
concentrated among a few customers. Competitors need only capture a small
number of large business and residence customers to capture the majority of
the Company's business and residence revenues. For example, recent studies
indicate that approximately 20% of the Company's business telephone numbers
account for 75% of its business toll revenues, and 20% of its residence
customers produce 70% of its residence toll revenues.
2
<PAGE>
Pacific Bell's business and residence revenues are also concentrated
geographically. Competitors need only serve small portions of our service
area to take the majority of the Company's business and residence usage
revenues. Customers tend to cluster in high density areas such as Los Angeles
and Orange County, the San Francisco Bay Area, San Diego and Sacramento.
Recent studies show that approximately 5% of the Company s serving area
produces 85% of business usage revenues and 20% of the Company s serving area
produces 70% of residence toll revenues.
Competitors can be expected to target the high usage, high profit customers
and can do this by targeting only a small part of our geographic area and a
small part of our customer base. Large and well-capitalized long distance
carriers, wireless companies, competitive access providers and cable
television companies are preparing to compete in major local exchange markets.
In some cases they are already deploying switches and other facilities. Cable
television companies currently pass approximately 9.4 million homes which
provide approximately $1.8 billion of our existing residential revenues.
Cable companies have already announced plans for major buildouts to compete in
the local exchange market. Several of these competitors already have as much
market recognition in California as does Pacific Bell. All our customers have
already chosen a long distance company, and there is much more advertising
from long distance companies than from traditional local exchange companies
including Pacific Bell.
Market research has shown that a substantial majority of residence customers
prefer using one company for all telecommunications services. This is a
significant competitive disadvantage for Pacific Bell since it is still
prohibited by the antitrust consent decree ("MFJ") from providing long
distance service between service areas. Similar market research shows that a
substantial majority of business customers would select one of the major long
distance companies over a combination of Pacific Bell and a long distance
company because using one carrier would permit them to apply all of their
traffic toward volume discount plans offered by the long distance companies.
For these reasons, the Corporation believes that implementation of local
exchange competition prior to the Corporation being allowed to enter the long
distance market would provide already strong competitors an unnecessary
advantage and that regulators should ensure that the responsibility for
universal service is shared by all telecommunications providers. The
Corporation believes that a truly open competitive market would allow for the
simultaneous entry of all telecommunications competitors into each other s
markets on an equal footing. Although the Corporation is facing increasing
competition for all of its services, the Corporation believes that a truly
open competitive market, in which the Company can compete without undue
restrictions, offers significant opportunity for it to grow the business.
3
<PAGE>
Form 8-K Pacific Telesis Group
April 19, 1995
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PACIFIC TELESIS GROUP
April 26, 1995 By /s/ R. W. Odgers
---------------------------
R. W. Odgers
Executive Vice President -
General Counsel and External Affairs
4
