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FCC May Be Best Hope for PacBell


Despite confusion over SBC Pacific Bell's landmark move into California's long-distance market, one thing is clear: The state's largest local phone company is likely to begin offering a full complement of services by the end of the year.

How that happens, though, is less clear.

The state's Public Utilities Commission knocked SBC PacBell's carefully laid plans off kilter Thursday when it gave a half-hearted endorsement to the company's application to sell long- distance in the country's most lucrative telecommunications market.

In its decision, the PUC created a regulatory dilemma by ruling that SBC PacBell had "substantially" met the highly technical 14 federal requirements needed to offer long-distance service but failed a similar state checklist. That means SBC PacBell could theoretically offer state-to-state calls but not long-distance calls within California--hardly an attractive offering for consumers.

SBC PacBell, which filed its long-distance application with the Federal Communications Commission on Friday morning, argues that it is not required to meet the state rules as long as it meets the federal rules. The FCC has 90 days to rule on the application, and SBC PacBell aims to start marketing a range of new services to consumers by New Year's Eve.

The FCC, which is likely to approve the application, may be SBC PacBell's best hope. Some lawmakers and regulators suggest that the federal commission can preempt state rules and grant SBC PacBell full access to California's $10.5-billion telecommunications market.

"We believe a favorable decision from the FCC will authorize us to enter both components of the long-distance market and will not be subject to state interference," SBC PacBell spokesman John Britton said.

But from the PUC's perspective, SBC PacBell must comply with state rules by the end of the year.

The state rules holding up SBC PacBell were written in large part by the phone company itself. They require four things of local phone companies wanting to offer long-distance: They must give rivals fair access to their local lines and equipment, refrain from anti- competitive behavior, avoid subsidizing long-distance with local revenue and demonstrate "no substantial possibility of harm" to the competitive long-distance market in California.

State regulators concluded that SBC PacBell failed all but the first requirement.

California is too attractive for SBC PacBell--already the state's largest local phone company, with more than 10 million customers--to walk away from. The company can already sell long-distance in regions where it is not the local phone company--Arizona, for instance.

But cratering prices and stiff competition have made it tough to make money with just long- distance, so SBC PacBell and the other local phone companies want to sell more profitable packages of long-distance, local, Internet and other services.

Observers say resolving the matter will largely be a behind-the-scenes affair, leaving consumers on the sidelines while SBC PacBell and state regulators try to find a way to satisfy the state law before the FCC completes its review.

Neither side wants a protracted legal battle.

Although the PUC could sue SBC PacBell or refuse a necessary license if it doesn't meet the remaining requirements, such a move would be uncharacteristically confrontational for a regulatory body that historically has backed away from bare-knuckle fights with phone companies.

"I'm interested in closing this issue, if it can be closed," said Geoffrey Brown, the PUC commissioner most closely involved in the case.

SBC PacBell could convince the PUC that it has satisfied the California rules.

Brown has suggested, for example, that the consumer protections built into the PUC's Thursday order could be sufficient.

Those provisions aim to proscribe how SBC PacBell employees can pitch long-distance to local customers during calls for service or repair.

"The obvious suggestion here is that the problems are not over," said James Bradford Ramsay, general counsel for a nationwide organization of state utility regulators called the National Assn. of Regulatory Utility Commissioners. "SBC Pacific Bell is still going to have to deal with the California commission."

Under the landmark Telecommunications Act of 1996, Congress gave the FCC authority to determine whether a regional Bell telephone company can offer long- distance service in its home territory. But lawmakers required the FCC to consult with the Justice Department and state public utility commissions as well to ensure that local phone markets were competitive before allowing a Bell phone company to offer long-distance service.

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