TCS Daily

Promises, Promises

By Duane D. Freese - January 28, 2002 12:00 AM

Promises, promises, why doesn't SBC keep its promises?

The largest of the remaining four regional Bell phone giants was again charged by the Federal Communications Commission with failing to open its phone lines to competitors, as it promised to win approval of its purchase of sibling phone monopoly, Ameritech in 1998. This time, the proposed fine was its biggest ever -- $6 million.

Coincidentally, the FCC action came the same day that some members in Congress had written FCC Chairman Michael Powell calling for tougher enforcement of competition rules under the Telecommunications Act of 1996. "Congress enacted the 1996 Act in order to bring innovative voice and data services to all Americans from a multitude of service providers at reasonable prices. Without better enforcement of the Act, we may soon regress to the days of monopoly telecommunications," wrote Reps. Steve Largent, R-Okla., Chris Cannon, R-Utah, Bart Stupak, D-Mich., Karen McCarthy, D-N.Y., Anna Eshoo, D-Calif., and Joseph Pitts, R-Penn.

They have reason for concern.

Before Friday's action, the FCC had fined SBC $53 million since December of 2000 and states another $29 million for failing to meet its obligations under the Ameritech purchase pact.

That may sound like a lot, but consider this. Last week, SBC agreed to $224 million in rebates to Illinois Ameritech customers at $50 a pop.

Hefty? The rebates actually amount to only half the financial gains even SBC says it has achieved from the merger (consumer advocates put the figure much higher). And with them, the phone giant also undercuts competitors, which will help make it hundreds of millions more.

The Telecom Act was a compact aimed at fostering competition throughout the telecommunications industry. The local Bell monopolies are supposed to gain entry into the competitive long distance arena for their regions only when they fairly open their local networks to competitors. Otherwise their control of the last mile of wire into homes and their primary contact with customers will allow them to leverage their monopoly in local phone service into other areas. Then, rather than competition everywhere, two or three Bell regional monopolies will rule.

Competitors have no chance to get started if the Bells don't meet their obligations to open their phone loops to them at rates that allow efficient ones at least the chance to make a profit.

And that is where the FCC has fallen flat.

The agency approved SBC entering long-distance service in Kansas and Oklahoma but later learned that SBC officials provided inaccurate information to the FCC about their provisioning competitors, leading to a $2.5 million fine in September. It could have revoked the long distance approvals, but it didn't.

Instead, it went ahead in November and approved SBC's request to provide long distance service in Arkansas and Missouri, this time dismissing a Justice Department recommendation that the "FCC should review the prices SBC charges for use of elements of its network to ensure that these prices are appropriately forward looking."

Finally, last month, a federal appeals court chastised the agency for brushing off competitors' complaints about a price squeeze in Oklahoma and Kansas, remanding the action for review. Still, the agency has indicated that it won't repeal its granting SBC's petitions for long distance.

Meanwhile, local competition founders. Not only in SBC's region but elsewhere. Sprint has found it unprofitable to provide local service in New York because the wholesale rates charged by the second largest RBOC, Verizon, make it unprofitable to serve that area. Those charges can amount to $31 for unbundled network elements that Verizon's competitors can turn around and sell for only $28 - a loss of $3 a line. That has led the second largest local phone provider, AT&T, to consider ending local service, too.

Verizon, like SBC, says it is selling its service at reasonable rates throughout its region. But a New York Public Service Commission judge last May recommended a cut in wholesale rates. The New York Public Service Commission will hold a hearing on the issue Wednesday and is expected to cut rates by as much as 50 percent.

That action is tardy. Bell Atlantic's merger with Nynex, creating Verizon, was predicated upon its opening the local loop to competition. The FCC has approved Verizon's provision of long distance service in much of the region based upon a competitive market. Fair rates need to be set at the start, not after competitors and their investors are squeezed out.

The surest way to ensure fair rates for all competitors would be to break up each of the local Bell monopolies into two companies -- a wholesale Bell would sell parts of the local loop on the same terms to all comers, and a retail Bell that could buy those services and compete for customers on the same terms as its competitors. Such structural separation would essentially replicate in the local phone arena what happened when AT&T was broken up in 1984 to successfully create competition in long distance.

But the regional Bells reject that, and for one simple reason. They don't want competition, they want to keep their monopolies.

They've thus made promises about competition that they've had little intention to keep. And the reason they don't is that FCC fines are not enough to make them keep their word. As the lawmakers who wrote Powell recently argued, the agency simply has to get tougher before the promise of competition disappears.


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