California regulators opened the door Thursday for the rest of the nation's telephone companies to compete with SBC Pacific Bell by slashing the prices the company can charge them for access to residential customers.
The action by the Public Utilities Commission should lead to lower basic phone bills and to competition that may reduce the cost of such added features as call waiting and voicemail.
"It's a watershed event," said Michael McNamara, a senior manager for the Office of Ratepayer Advocates, the PUC's consumer advocacy arm.
The commission's action cuts the cost for competitors leasing SBC PacBell lines to homes and SBC PacBell switches that direct traffic by about $9 a month for the average residential bill, though how much consumers will see of that savings is not yet known.
The reduction is an interim cost, subject to revision, but PUC Commissioner Carl Wood said the panel is confident the new rates are reasonable.
"It's a huge win for consumers," said Ken McNeely, president of AT&T Corp.'s California unit, which plans to enter the residential and small-business market this summer.
WorldCom Inc.'s MCI unit, which has offered its new Neighborhood one-price package for local and long-distance calls, plans to step up its effort statewide immediately.
With about 11 million residential lines, SBC PacBell, a unit of San Antonio-based SBC Communications Inc., controls 90% of the market in its service area, which covers 78% of the state. It contends that the previous rates barely cover costs.
"The rate reductions are not reasonable, justified or supported by the extensive cost studies on this issue, which have gone on for five years," said SBC PacBell spokesman John Britton. "SBC PacBell and its customers and shareholders should not be required to subsidize its competitors."
Britton said his company "will weigh all our considerations," including a possible appeal of the commission's decision.
The commission's rate decision comes on the heels of Monday's U.S. Supreme Court ruling that upheld federal rules allowing outsiders to lease local lines at relatively low costs.
The decision is expected to help spur competition.
The PUC reduced the price charged for each loop--the line from the home to the phone company's central station--by 15% to an average of $9.93 a month a customer. . It slashed the switch rates 69% to nearly $4 a month.
Several PUC commissioners have acknowledged that the California wholesale rates in effect for the last several years were too high and were largely to blame for the lack of competition in the local phone market.
In getting lower rates, MCI said it will drop efforts to block SBC PacBell from offering long-distance service, and other long-haul carriers are expected to follow suit.
But the regulatory approval process can take months, SBC PacBell contends, giving competitors a jump on offering their real money-making deals: packages of services bundled at one price.
"There is no [profit] margin, period, in providing local access," Britton said. SBC PacBell can't make money simply on access charges, he said, and must reduce those costs for competitors, which he estimated are taking about 12,000 mostly business customers a day from the state's dominant local carrier.
But AT&T, MCI and other long-distance phone companies had largely pulled out of the state in the late 1990s, claiming that existing lease rates were too prohibitive and that rates SBC was charging in states such as Illinois and Michigan were far lower than what it was charging competitors in California.
The PUC, in its decision, noted that SBC PacBell refused to turn over information documenting the need for higher costs for switches at central stations that direct traffic and offer features such as call waiting and voicemail. Britton said the company "followed all rules and regulations."
Times staff writer Elizabeth Douglass contributed to this report.