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Regulators to Redo Bells' Fee Formula

The FCC review sets up a debate over wholesale prices for leasing lines and equipment to rivals.

September 11, 2003|James S. Granelli | Times Staff Writer

Federal regulators opened the door Wednesday to another major telecom battle by agreeing to redo the pricing formula that sets fees that Baby Bells can charge rivals for leasing phone lines and equipment.

SBC Communications Inc., California's dominant local telephone company, and the nation's other Bells want a formula that takes into account their actual costs and allows them to charge higher wholesale prices to rivals such as AT&T Corp.

The current Federal Communications Commission formula looks at hypothetical costs of a new telephone network, which, with newer technology, would be less than the amount already spent to build and maintain the existing network.

The four Bell companies say that wholesale prices are too low and give competitors an unfair advantage, while discouraging both the Bells and their rivals from investing in new gear.

"The FCC-mandated wholesale rates for telephone lines must be at least compensatory -- that is, our costs must be covered," said Herschel Abbott, a vice president at BellSouth Corp.

AT&T, which said this week that it would expand local service into 35 states from 13 by year's end, said SBC, BellSouth and the other regional phone companies already recover their costs under current rates.

The debate over the pricing formulas "is just one in a long line of efforts by the Bells to kill competition and allow them to raise rates to consumers back to where they were before companies like AT&T entered the local market," said Robert Quinn, an AT&T vice president.

The Assn. for Local Telecommunications Services, an industry group supporting local competition, called the review "un- necessary and unproductive" but noted that the agency had limited the scope to a few issues.

Rivals also noted that the Bells agreed to lower prices in the last few years as a condition for being allowed to compete for long-distance business. In many states, they are taking more long-distance lines away from AT&T, WorldCom Inc.'s MCI unit and others than they are losing to rivals on the local side.

It is expected to take at least a year to revise the formula.

The proposed changes to rate formulas are separate from new competition rules adopted in February and released last month that allow states to decide whether the regional phone companies must lease their equipment at discounts. SBC, BellSouth, Verizon Communications Inc. and Qwest Communications International Inc. have asked the U.S. Court of Appeals to overturn those rules.


Bloomberg News was used in compiling this report.

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