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Rivals Seek Probe of Baby Bells' Meeting

October 31, 2003|James S. Granelli | Times Staff Writer

Two dozen telecommunications companies will urge Congress today to determine whether the Baby Bell phone companies violated antitrust laws when they discussed plans to build a war chest of as much as $40 million to lobby for an end to government regulations that restrict their ability to raise prices.

In a letter to the House and Senate judiciary committees, the companies say they are seeking an investigation of a secret meeting at which the Bells discussed with the heads of high-tech companies that make telecom gear the need for financial support for the Bells' lobbying campaign.

The results of a joint plan discussed at the high-level dinner meeting Oct. 20 would "raise prices, end competition and continue the market division" that keeps the Bells essentially out of one another's territories, the companies write in their letter.

"The Bell companies appear to be organizing some kind of cartel-like behavior and committing not a small sum in order to recapture their monopoly," said Jason Oxman, assistant general counsel of DSL provider Covad Communications Group Inc., one of the 24 companies that signed the letter. "If true, that's a very dangerous, dangerous event."

The Baby Bells, which own most of the nation's local phone networks and dominate most of the local market, vehemently deny any attempt to set prices or do anything else that is against the law, according to the U.S. Telecom Assn., the trade organization that represents them in Washington.

"There was nothing about price that was discussed at that meeting," said Tom Amontree, a USTA senior vice president. "We are extremely sensitive about antitrust issues. We made sure that had nothing to do with the meeting."

He also denied that the Bells were twisting the arms of their vendors to get them to join the lobbying effort.

USTA President Walter B. McCormick Jr. called the allegations in the letter "baseless and slanderous."

"What we wanted to talk about is forward-looking public policy that is aimed at invigorating competition, increasing consumer choice and [encouraging] economic growth through infrastructure investments and job creation," McCormick said.

The campaign came to light this week when the Los Angeles Times published details from a USTA memo written by McCormick that described the proposed lobbying effort. It was the subject of a dinner meeting at the St. Regis Hotel in Washington attended by chief executives of SBC Communications Inc., Verizon Communications Inc., BellSouth Corp. and other local phone companies and their counterparts at Intel Corp., Lucent Technologies Inc., Motorola Inc., Nortel Networks Corp. and other telecom vendors.

According to the memo, the Bells hope to raise as much as $500,000 a year for three years from each of the major suppliers and manufacturers of such telecom gear as chips and switches.

The goal is to win "comprehensive federal legislation to substitute market-based competition for government-managed competition," McCormick wrote in the memo. The Bells hope "to end government management of competition where the consumer has a choice of telecommunications service."

Executives of vendors that attended the meeting declined to comment or could not be reached.

The Bell companies have long argued that current laws and regulations discourage them from upgrading their networks or investing in new and innovative equipment, such as high-speed fiber optic lines.

Rules that force the Bells to lease their gear to rivals at prices they say are below cost provide no incentive to invest, they say. In California, for instance, SBC is seeking to double the wholesale rates it is allowed to charge for local phone service to nearly $30 a month.

The regulations are designed to spur competition in the market for local phone service and allow the Bells' rivals time to build market share to justify the expense of building their own networks. Pulling the plug now would effectively eliminate competition, the rivals say.

The Bells respond that wireless phone providers and cable companies already provide enough competition and that more is on the way from firms focusing on Internet telephony.

Alfred Kahn, a Cornell University economics professor, said the federal pricing formula for wholesale telephone rates should recognize certain costs that would allow the Bells to charge higher prices. In areas where the Bells' network is the only option for customers, deregulation is a more difficult proposition than in urban areas where wireless and cable are entrenched, he said.

Rep. Edward J. Markey (D-Mass.), a member of the House Energy and Commerce Committee and a longtime supporter of phone competition, said he read the USTA memo and found it "very troubling."

"The Bells are still pining for the old days" when they were monopolies in their markets, Markey said. "The digital economy is not going to thrive and create jobs and promote innovation and investment if it is embodied by a cozy community of a few big carriers."

Markey said he would like to ask all 15 CEOs who attended the Oct. 20 meeting to reassemble before a congressional committee and explain what went on.

"It would be very illuminating," he said.

A U.S. Supreme Court decision allows companies like the Bells to work together on matters of public policy. But they can't use that protection "as a cloak for engaging in illegal behavior," the 24 rival companies say in their letter to Congress.

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