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Wholesale SBC Rate Expected to Rise 20%

September 23, 2004|James S. Granelli | Times Staff Writer

State regulators are expected to raise wholesale telephone rates today, ending a contentious three-year proceeding and setting the stage for higher customer bills.

The Public Utilities Commission is set to choose from four proposals that would increase the price that rival companies pay SBC Communications Inc. for access to the copper lines that connect homes and businesses to the national phone network.

That access is required by state and federal law to promote competition in local telephone service. SBC complains that current rates are too low; rivals such as AT&T Corp. and MCI Inc. counter that they can't compete if rates are too high.

If rates soar too much, it's "tantamount to saying they don't want us to be a competitor," said Rolla P. Huff, chairman of Mpower Communications Corp., one of the smaller companies trying to win customers from SBC in California.

The increases in the proposals range from 3.5% to 54%. Currently, rivals pay SBC, on average, $9.82 a month to rent each line and $13.93 for the platform of services required to get dial tone.

Most observers expect commissioners to approve a boost of about 20%.

In the weeks leading up to today's vote, the five-member commission has been lobbied hard. SBC and its rivals both maintain that the new rates will affect job growth, innovation and customer choice.

"Some people are saying that SBC needs to invest; others ask, 'Do you really want to kill off competition?' " Commissioner Geoffrey F. Brown said. "Those things are in the back of our minds. It's an unenviable task to figure this out."

State regulators across the country will be watching where California comes down. Many of them are grappling with the same question in the wake of a March court ruling that struck down key elements of federal phone competition rules.

Since January, Midwest states where SBC is the dominant carrier have been raising wholesale rates. On Tuesday, for instance, Michigan regulators increased rates 10% to $15.72 a month for the platform. It lifted the line rate 15% to $11.50.

If the PUC votes for a large increase in wholesale rates, it would expose a gaping loophole in a six-month standstill order issued last month by the Federal Communications Commission.

Although the FCC order maintains the current rate rules, it still allows states to approve increases.

"How could it make sense to say we need this rate freeze to have stability in the marketplace and yet create" a situation in which local phone companies "can go to the states, where they have political muscle, and demand higher rates?" asked former FCC general counsel Bruce Fein.

Not everyone sees things that way, however. One former PUC member, G. Mitchell Wilk of San Francisco, contends that the whole system to lower rates under the monopoly-busting Telecommunications Act of 1996 was artificial to begin with -- and that the current low rates are unreasonable and unsustainable.

In Wilk's view, requiring SBC and other network owners to lease their lines and gear at rates they say are below cost effectively subsidizes AT&T, MCI and dozens of smaller companies. And that, in turn, discourages investment in new technologies.

Even with rates held down for eight years, "customers are no better off today than they were before" in terms of choosing among competitors able to offer their own phone networks, said Wilk, a PUC member in the 1980s and now a business consultant.

The Telecom Act was designed to break up the Baby Bell monopolies in local phone service and, in return, let the Bells enter the long-distance market.

But suddenly, the Bells are poised to reemerge as de facto monopolies.

The only serious competition in the mass market now comes from wireless carriers, and the Bells own the two biggest cellular companies. Cable telephone service, though strong in a few areas such as San Diego, is still far off in most places.

Despite that situation, SBC has been effective in convincing regulators that rates need to go higher.

Rivals, said SBC spokesman John Britton, are simply trying to maintain the "excessive profits" they reap from the current arrangement.

What's more, Britton said, California's wholesale prices are among the lowest nationwide.

"There is no justification for that in one of the nation's highest-cost states," he said.

California's line rate ranks 46th nationwide; its platform rate is 43rd, Commissioner Susan P. Kennedy said.

Her proposal to raise the line rate 54% to $15.08 would rank the state 21st on the nationwide list. Her proposed platform hike of 41% to $19.60 would rank California 24th.

PUC President Michael R. Peevey would bump up the line rate 47% to $14.44 and the platform price 35% to $18.85.

Agency watchers don't expect either plan to pass. Instead, they anticipate that the draft from Commissioner Carl W. Wood, who has overseen the case, will be adopted. Wood's plan calls for a 22% increase in the line rate to $11.94 and a 20% hike in the platform rate to $16.67.

PUC Administrative Law Judge Dorothy Duda proposes the most modest increases, 3.5% in the line rate to $10.16 and 1.8% in the platform price to $14.18.

Even Wood's 22% increase "would be so significant on our cash flows and reserves that it would make growing our infrastructure almost impossible," said Jeff Compton, an executive at SBC rival Telscape Communications Inc.

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