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PacBell Is on Road to Long-Distance Service

Telecom: The local phone carrier is given tentative approval to enter the market in California. A PUC vote is expected as early as Aug. 22.

July 24, 2002|ELIZABETH DOUGLASS | TIMES STAFF WRITER

SBC Pacific Bell, the state's largest local phone company, won tentative approval Tuesday to sell long-distance service in California, a move that would radically alter the state's massive telecommunications market and strike another blow to crippled long-distance companies such as WorldCom Inc.

But the landmark ruling by an administrative law judge contained a host of conditions on how SBC PacBell can enter the long-distance business, noting in harsh language the company's anti-competitive behavior in selling high-speed Internet services.

SBC PacBell praised the ruling and said it would work with the Public Utilities Commission to address the judge's criticisms. But consumer advocates and rival phone companies questioned whether the commission should endorse the move.

The judge is saying "we find that you have acted in an anti-competitive way, but we think you should be deregulated anyway," said Ken McNeely, president of rival AT&T California.

The ruling will go to the five-member commission for a vote as early as Aug. 22. SBC PacBell said it then would proceed to the Federal Communications Commission for approval. It expects to be selling long-distance throughout California by the end of the year.

At least one commissioner, Geoffrey Brown, believes the company is "more than ready" to sell long-distance service in California.

Administrative Law Judge Jacqueline Reed ruled that SBC PacBell must separate its long-distance marketing from its local phone service marketing and that the company should study the option of dividing the two businesses into separate companies.

Lora Watts, president of external affairs for SBC PacBell, praised the judge's ruling, saying, "It gives us a thumbs up to move forward." Of the critical language and concern about meeting state law, "there is nothing there that provides any concern to us," she said.

Under the 1996 Telecommunications Act, PacBell has been barred from selling long-distance service in its home market until it proves it has sufficiently opened its monopoly local phone service territories to competitors. In a separate state law, regulators must find that the move is in the public interest and that there are no anti-competitive behavior and no unfair use of local customer data. Reed found that the firm did not meet those requirements, leaving open whether the commission can ignore state law and approve the application.

SBC PacBell, owned by San Antonio-based SBC Communications Inc., controls 95% of California's residential phone market, with more than 7.8 million customers. Its strength in the local market is expected to quickly translate into a leading market share in California's long-distance market as well.

The company contends that its ability to offer long-distance would be a boon to consumers, who would get more choices, better deals on packages of local and long-distance service, and the convenience of one phone bill and one-stop shopping.

Rich Sayers, an independent expert on long-distance service, said that's only partly true. Judging by results in other states, SBC PacBell's long-distance offering is likely to have only moderate prices compared to other companies.

But customers may save money anyway, he said, because many signed up for higher-priced plans and don't have time to shop around. Because SBC PacBell "owns the envelope" for the local phone bill, the long-distance offers are likely to catch the attention of busy consumers and win their business with relatively lower prices and the ease of switching.

Critics believe any savings on long-distance would be outstripped by the company's pricing on its local services, where SBC PacBell has little residential competition.

Even Judge Reed appeared to have doubts.

Despite concluding that SBC PacBell has won the right to move into long-distance, Reed said the company doesn't meet some requirements because it "has erected unreasonable barriers to entry" into California's critical and lucrative market for high-speed Internet access over phone lines, a service known as digital subscriber line.

Last year, a group of California Internet service providers filed a complaint with state regulators charging that SBC PacBell had control of the DSL market and that the ISPs were being forced to sign overly restrictive contracts with the phone company.

"California's independent Internet service providers have been ravaged by Pacific Bell's anti-competitive behavior," said David Simpson, founder of the California Internet Service Providers Assn. "It is simply naive to think that Pacific Bell will not leverage their local monopoly in abusive and anti-competitive ways once [it has] access to this vast and lucrative long-distance market."

In the last 10 months, SBC PacBell has been fined more than $52 million for sales and marketing abuses in the residential phone and the DSL markets.

One investigation uncovered a boiler room-like atmosphere at SBC PacBell, where service representatives were offered sales incentives and urged on by management fliers that read, "Offer high, watch 'em buy; offer low, nowhere to go."

"Pacific is notorious for using its local monopoly to pressure its captive customers to buy additional services," said Regina Costa, of the consumer group the Utility Reform Network. "Its entry into the long-distance business could subject consumers to the biggest hard-sell by PacBell in history."

The most successful local competitors in California have been the cable telephony operations of Cox Communications Inc. and AT&T Broadband, which have signed up several hundred thousand Californians for local phone service.

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