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AT&T to Offer to End Dispute With Baby Bells

The firm will propose using its own gear while leasing rivals' local networks. It aims to restrain wholesale rates.

April 29, 2004|James S. Granelli | Times Staff Writer

AT&T Corp. will propose today that it use its own equipment to provide local telephone service across the country, part of a bid to break a deadlock over access to residential lines owned by the regional Baby Bells.

The nation's largest seller of long-distance service has been locked in a bitter dispute with Bell companies such as SBC Communications Inc. over the rates the Bells charge competitors to use their networks.

AT&T's proposal aims to preserve the relatively cheap access it and other companies enjoy by addressing a key objection from SBC and other local network owners: that the regulated rates are sometimes so low, competitors have little incentive to install their own switches and other gear.

The dispute took on new urgency March 2 when a federal appeals court threw out the federal competition rules requiring the Bells to share their networks. In the wake of the ruling, the Federal Communications Commission and the Bush administration called on the Bells and their rivals to negotiate rates by June 15 and preserve competition, which saves customers about $10 billion a year.

The AT&T proposal, a more detailed version of a broad framework outlined early this month by MCI Inc., marks a turning point in the current round of negotiations between the Bells and the competitors.

"AT&T is the single most important competitor to get into the negotiating game, and that puts pressure on everyone to get serious," said analyst Blair Levin of Legg Mason Equity Research in Washington. "This proposal is a very valuable structural change."

Under the proposal, the Baby Bells could raise the monthly price for renting the full package of hardware and software needed to provide telephone service by $1 a year for three years. In California, Bell rivals pay an average of about $14 a month per line for that service from SBC, the state's dominant local phone company.

In exchange, the monthly price for renting only the copper wires that run to homes and businesses would be reduced by $1 a year. Right now, SBC is allowed to charge $10 a month per line for that.

Both AT&T and MCI, the two biggest Bell rivals, say they have enough capacity on their switches, which connect calls and carry features like call waiting, to handle most of their local customers. But they say the Bells' process for moving large volumes of customers to those switches is slow, expensive and unreliable. In some cases, AT&T and MCI would have to buy additional switches, which cost up to $5 million for units that can handle 100,000 lines.

AT&T Chairman David W. Dorman said the proposal would "relieve the Bell companies of the leasing obligations to which they most object and allow AT&T to expand the use of its own facilities to serve local customers."

Bell companies were skeptical, especially of the call to lower the price for access to lines, called loops, to customer homes.

"I suspect we would have a hard time with that," said Eric Rabe, spokesman for Verizon Communications Inc., California's second-largest local phone company. "The loop prices already are below our costs."

SBC spokesman Dave Pacholczyk said the company would review AT&T's framework "and give it some serious thought."

FCC Chairman Michael K. Powell has been critical of competitors that rely only or mainly on renting the Bell network package. He believes rivals must buy their own facilities to compete.

The federal Telecommunications Act of 1996, aimed at opening local markets to competition, foresaw the day when competitors would use their own equipment to serve customers. But it also recognized the need for a transition period in which rivals would rent Bell facilities. The Bells have fought rules adopted by the FCC to foster that competition.

The key to AT&T's proposal is a provision that would require a more efficient, reliable and economical way of moving customer lines to rivals' switches. Rabe said Verizon has a modern system that can quickly move customer lines to rivals' switches. Other network owners, he said, are looking into similar systems.

James Lewis, MCI's senior vice president for public policy, said proposals like his company's provided the best opportunity for the phone industry to wean itself off regulation while preserving competition.

"To provide service to the mass market on our own switches, it is still the case that we need access to the Bell loops at reasonable rates," Lewis said.

"That is still the natural monopoly."

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