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PacTel, SBC Grilled Over Competition

Telecom: Consumer groups, commissioners and rivals give views about the impact of proposed merger on local phone market.


SAN FRANCISCO — Public Utilities Commissioners quizzed Pacific Telesis Group and SBC Communications on Friday about whether their proposed $16.7-billion merger would cripple competition for local phone service in California.

At the public hearing, the commissioners' focus on the fledgling local market offered the first glimpse of PUC concerns about the merger and what restrictions they might impose when they make their final decision March 31.

Parties on both sides recommended changes to the proposed decision issued by a pair of PUC judges. PUC President P. Gregory Conlon suggested that two or more alternative proposals could emerge next week.

The two Baby Bells sought to ward off any restrictions--including $590.5 million in refunds to ratepayers--saying that they expect to lose market share even if the deal is approved. Indeed, PacTel general counsel Dick Odgers said the prospect of growing competition led his company to seek a partner such as SBC so that PacTel could hold its own against phone giants such as AT&T, MCI Communications, GTE and others.

But representatives from AT&T and MCI joined the PUC's Office of Ratepayer Advocates and consumer groups in arguing at the hearing that a merger without detailed regulations would make the difficult job of offering competitive local phone service in California even tougher. They expressed concern about the lack of competition in SBC's home state of Texas and worried that a PacTel-SBC combination would ward off all but the most deep-pocketed competitors.

Conlon was skeptical of PacTel's claims that the market for local service is already competitive, especially since newcomers have been loathe to invest the billions of dollars needed to build their own facilities. Instead, they have preferred to buy the service from Pacific Bell at wholesale rates and resell it to their customers.

Commissioners also took up the question of whether PacTel and SBC should have to refund $590.5 million over five years (about $750 million, including interest) to ratepayers, as proposed by a pair of PUC judges.

The phone companies argued that their offer to set up a $50-million technology fund for underserved communities and to bring phone service to several million additional homes is a sufficient alternative to rebates. Consumer advocates, however, insisted that ratepayers should receive a direct economic benefit from the merger because their fees provided the money to build the network in the first place.

Several grass-roots groups lobbied the commissioners on behalf of PacTel and SBC, saying that their technology fund and universal service initiatives would have a bigger impact than a monthly refund spread among millions of customers.

"Is a 25-cent or 50-cent refund to a ratepayer truly more valuable than bringing service to 4 million people or building four new headquarters or creating 1,000 jobs?" asked Mark Savage, an attorney with Public Advocates who represented several community groups that support the deal. "I believe not."

Only AT&T and MCI urged the commissioners to reject the merger outright. Alfred Pseiffer, an attorney who spoke on behalf of AT&T, said that no matter how generously the merger benefits are valued, it will not outweigh the negative impact on local competition.

Jim Ellis, SBC's general counsel, vehemently disagreed. In noting that more than 70 companies have signed up to provide local service in the state, Ellis said: "It's easier to become a local exchange carrier than to open a McDonald's franchise."

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