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Playing All the Angles--but One

September 20, 2002|JON HEALEY and ALEX PHAM | TIMES STAFF WRITERS

In its quest to offer long-distance service to Californians, SBC Pacific Bell mounted the lobbying equivalent of a full-court press.

It lined up hundreds of business and civic groups to support its application before the California Public Utilities Commission, drawing on a long history of philanthropy and goodwill.

It took critics out of the debate by providing aid to one and silencing another through a legal settlement. And when an influential state senator urged the PUC not to approve the company's application, SBC PacBell rounded up a slate of legislators to take its side.

But the San Francisco company didn't play the one angle that could matter most: It never sought to overturn an 8-year-old state law that may block it from carrying long-distance calls inside California.

Instead, the phone giant focused on an ill-fated bill to limit the power of the PUC to regulate rates and profits. Eliminating the state law governing long-distance service "would have been a smarter bill for SBC to do this past year," a key aide in the state Senate said.

SBC PacBell doesn't seem concerned. On Thursday, company officials treated the PUC's 4-1 vote as an endorsement of their plan to enter the long-distance market.

For their part, state regulators said their action merely moves SBC PacBell's application to offer interstate long-distance service on to the Federal Communications Commission. The PUC also decided that the company had not met the conditions spelled out in state law for offering long-distance service within California. That would essentially make it impossible for the company to offer a competitive long-distance service.

What makes the potential predicament so stunning is how much effort SBC PacBell poured into winning the battles it chose to fight.

"This was the most pressurized public position I've been in since I joined public service in 1970," PUC Commissioner Geoffrey Brown said. "I would rate it in the ultraviolet zone."

Backed by unions and small businesses, local Bell companies such as SBC have been among the most effective government lobbyists. Unlike their rivals in the long-distance business, they have a strong presence in the communities they serve and they give millions of dollars to civic groups and charities.

These local connections and philanthropic efforts guarantee the Bells will have a wide array of grass-roots backers when they seek new laws, lighter regulations or permission to enter markets.

Not long after PacBell sought the PUC's endorsement for long-distance service, economic-development groups, trade associations and civic leaders voiced their support through letters and public testimony. Among those weighing in were the Black American Political Assn. of California, the Latino Resource Organization, the Boys & Girls Club of Santa Clarita Valley, Leadership Education for Asian Pacifics Inc., New Economics for Women and the Senior Action Network.

"SBC used its influence to convey to community groups the importance of testifying" in favor of the company's application during hearings before the PUC, said Bob Gnaizda, general counsel for the nonprofit Greenlining Institute in San Francisco.

"And many groups believed there was an implicit message. SBC did not need to tell them explicitly."

Ben Benavides, head of the Mexican American Political Assn., said SBC approached him last year to testify. The approach suggested that SBC was "calling in a favor," he said, although the company didn't specify a quid pro quo. Benavides suffered a stroke before getting a chance to testify.

Opponents of PacBell's application included firms that compete with SBC for high-speed Internet customers but rely on PacBell to provide the copper lines. One of its most bitter critics early on was Covad Communications Group Inc. of Santa Clara, Calif., which accused PacBell of giving SBC's services an unfair advantage.

Jason Oxman, assistant general counsel of Covad, said those problems were resolved "quite to our satisfaction" after SBC bought a 5% stake in Covad two years ago. Covad hasn't opposed PacBell's long-distance application since then, Oxman said.

The California Internet Service Providers Assn. also had problems with PacBell on the issue of high-speed Internet services, filing a complaint with the PUC against PacBell and SBC. Faced with heavy legal bills, however, CISPA struck a deal with PacBell to settle the complaint privately. As part of that deal, CISPA agreed to withdraw the comments it had filed on PacBell's long-distance application and offer no further opposition.

This deal drew protest from two state consumer groups, but PacBell spokesman John Britton said it was appropriate. "It doesn't make sense to settle those allegations, make concessions and then face those same allegations" in the long-distance case, Britton said.

As for the potential barrier in state law, PacBell officials argue that it was superseded in 1996, when Congress laid out its own set of requirements for the local Bells to enter the long-distance market. That's why PacBell made no attempt to overturn the state requirements, Britton said.

Times staff writer Elizabeth Douglass contributed to this report.

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