TCS Daily

Gas Prices Might Not Be the Only Ones Rising

By Duane D. Freese - May 19, 2004 12:00 AM

Recent articles in The Wall Street Journal and Los Angeles Times are begging the question: Are the White House and federal regulators going to allow the local Bell operating monopolies -- SBC, Verizon, Bell South and Qwest -- to dictate the future of the information economy? Are they ready to risk rising phone bills to go along with higher gas prices?

The issue is being elevated as a result of the Bells' reported intransigence in negotiations called for by the Federal Communication Commission over leasing of their local loops to competitors.

The commission issued a call to negotiate rather than immediately appealing to the Supreme Court a wrongheaded D.C. appeals court ruling on rates. The ruling vacated the FCC's rules for the Bells' leasing their facilities, saying the agency placed more reliance on state regulatory agencies to determine fair wholesale rates than the Telecommunications Act of 1996 allowed.

The commission did win a stay until June 15 to permit negotiations, in the vain hope that what was not accomplished in eight years might be possible in 90 days.

In the last two weeks, several CLECs led by AT&T have offered the Bells something to break the log jam -- proposals that would move competitors off of the Bells switches to their own in a set time frame.

It seemed to be what the Bells have demanded for years. Since the passage of Telecommunications Act of 1996, they have litigated its requirements that they lease their entire unbundled network element platform -- UNE-P -- at wholesale rates. Such leasing increased competitors share of the local market from less than 5 percent to almost 15 percent in the last three years. But SBC Chairman Edward E. Whitacre Jr. claimed it was not "real facilities based competition."

So, when AT&T made its offer, FCC Chairman Michael Powell applauded the move as "significant and important for the telecommunications industry."

"In the long run," he said, "the transition to facilities-based competition holds out the best promise of real benefit to America's telephone consumers. ... [T]his clearly shows that AT&T has taken seriously the commission's call to engage in good faith negotiations over unbundled network elements."

As for the Bells, they dismissed the proposal almost immediately. In fact, they called it a backward step, with rates too low for them to recoup their costs.

So AT&T went back to the drawing board and last Friday offered to submit leasing arrangements to binding arbitration. Let a neutral third party decide what would be fair for leasing portions of the Bell network and moving competitors off their switches.

Again, AT&T was totally rebuffed.

In fact, Paul Mancini, SBC's assistant general counsel, disingenuously argued, "AT&T can't have it both ways. They can't complain about the lack of progress while refusing to come to agreement with any phone company anywhere in the country."

But what kind of agreement would it take to get a deal with any of the Bells? A going out of business price -- with SBC's generous offer to competitors in Illinois being to increase wholesale rates from $12 to $22?

Or a mortgage on a competitor's future for life to the Bells?

The Los Angeles Times reported recently: "In SBC's negotiations for a lease deal with Talk America Holdings Inc., sources said, SBC is proposing a requirement that the small Virginia-based firm use SBC's network for nearly all of its phone traffic, discouraging it from installing its own equipment and preventing it from leasing from other providers."

The story went on: "'The Bells have been adamant about calling this use of their facilities "parasitic competition,"' said one of several people at the FCC. Said another: 'But in reality, they want to keep you caged in for as long as possible.'"

It seems that the Bells are the ones that want it both ways.

And that is where the White House and FCC will have to make a choice -- will they give it to them?

The Bells in negotiations right now feel no pressure to negotiate fairly. They seem to think that they've won the game. And why not? They have a court decision the FCC has yet to appeal and thus a government granted monopoly on the last mile of phone line into the home?

But it won't be the Bells paying the price if phone bills go up. The AARP and other consumer groups proved that in Florida. When the legislature considered a bill to allow phone rate hikes equivalent to $6.86 a month -- about half the wholesale rate increases the Bells are seeking -- they raised a stink that is still smelled in Tallahassee.

Consumers nationally are unlikely to be any more forgiving. After all, they are used to see prices in telecommunication generally go down. That is what has happened in the competitive long distance sector, where seven national loops support 1,000 competitive carriers. Customer costs have dropped from an average of more than $20 a month on average in 1995 to under $13 a month now.

Meanwhile, bills in Bell monopolized local sector have headed in the other direction -- rising from under $30 a month in 1995 to more than $36 a month. They would be much higher except for the competition offered by competitors such as AT&T, Sprint and MCI.

So if the Bells don't soon change their tone of their responses in negotiations, the White House and FCC will have to go back to court -- the Supreme Court -- to overturn the appeals court ruling.

H. Russell Frisby Jr., CEO for CompTel/ASCENT, put it bluntly: "[T]he sole, sure method of achieving certainty for all parties is through a stay and Supreme Court review of the [appeals court's] flawed decision. ... Without that certainty, consumers' telephone bills will soon see the same drastic price hikes as a gallon of milk or a tank of gasoline."

And that is something no administration can afford.


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