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 BELL
A California Commission File I.R.S. Employer
Corporation No. 1-1414 No. 94-0745535
140 Montgomery Street, San Francisco, California 94105
Telephone Number (415) 542-9000
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Form 8-K Pacific Bell
April 19, 1995
Item 5. Other Events
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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 the
Company's Form 10-K for 1994.) Currently local exchange service revenues
represent approximately 42% of Pacific Bell s total operating revenues.
On April 19, 1995, Pacific Telesis Group (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 Company's Form 10-Q for the first quarter of 1995.) While it is
still too early to draw conclusions, the Company 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.
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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 Company believes that implementation of local exchange
competition prior to the Company 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 Company 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 Company is facing increasing competition for all of its services,
the Company 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.
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Form 8-K Pacific Bell
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 BELL
April 26, 1995 By: /s/ R. W. Odgers
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R. W. Odgers
Executive Vice President and Secretary
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