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SBC Lease Rate Prompts Outcry

State approves a 19% wholesale hike, effective immediately. The vote disappoints rival firms.

September 24, 2004|James S. Granelli | Times Staff Writer

State regulators raised wholesale telephone rates an average of 19% on Thursday, prompting outcries that higher prices would hamper competition and drive some companies out of business.

The 3-2 vote by the California Public Utilities Commission allows SBC Communications Inc., the state's dominant carrier, to charge more for leasing its lines and other gear to AT&T Corp., MCI Inc. and smaller providers.

State and federal laws intended to promote competition require SBC and other local phone companies to sell rivals access to the copper wire that connects most homes and businesses to the national telephone network.

The rate structure approved by the PUC takes effect immediately and raises the cost of leasing SBC's copper lines 21.5% to an average of $11.93 a month per line. The cost of leasing the full platform of lines and gear necessary for a dial tone climbed nearly 19% to an average of $16.53 a month.

SBC charges its retail customers an average of $10.69 for basic phone service. That price was unaffected by Thursday's decision.

SBC has long complained that the wholesale rates are too low. It wanted the PUC to double them. The company said Thursday that even the new rates are below its costs and discourage investment in new equipment and services.

The rates are "still far below the national average in this very high-cost state," said Lora K. Watts, SBC's president for external affairs in California. "The CPUC has missed a golden opportunity to send a message to the nation that the Golden State is now open for business, investment and job growth."

Nonetheless, SBC competitors roundly criticized the decision.

"This will make it a lot tougher for me to compete," said Tony DiStefano, chief executive of Bakersfield-based Arrival Communications Inc., which serves 30,000 lines into small-business customers in the Central Valley.

Said AT&T California President Kenneth McNeely, "Today's vote is an inexplicable about-face from the pro-competitive actions taken by this commission just 2 1/2 years ago."

In May 2002, the PUC lowered the wholesale rates under pressure from federal regulators. That action allowed dozens of companies to offer competitive services and lower prices to millions of Californians.

McNeely said AT&T would raise consumer rates but he could not say by how much.

MCI said it might abandon some basic plans or areas in California, the nation's biggest telecommunications market.

"Our ability to continue offering all of our current services at their existing prices is now in jeopardy," said James Lewis, MCI senior vice president for policy and planning. "Once this decision is implemented, all California consumers and businesses will pay more for local and bundled services and will see their options reduced in some parts of the state."

SBC has dismissed such claims, saying competitors can absorb higher costs. "SBC cannot continue to subsidize competitors without making difficult decisions to continue investment and jobs in the state," Watts said.

Thursday's vote comes as competition among conventional "landline" telecommunications companies grows more precarious. Key federal rules were tossed out in March by an appeals court. Interim rules enacted last month by the Federal Communications Commission are being challenged by the regional phone companies, like SBC, that own most of the nation's copper wire networks.

With federal rules in flux, SBC and others have lobbied for -- and, increasingly, are winning -- boosts in wholesale rates from state regulators across the country. Their successes cause some to fret that the regional landline monopolies are poised to reemerge.

"It's the Henry Ford approach to customer choice," said state Sen. Debra Bowen (D-Marina del Rey), chairwoman of the Senate Energy, Utilities and Communications Committee. "Ford once said, 'People can have the Model T in any color, so long as it's black.' The commission looks like it wants a market where people can choose any local phone company they want, as long as it's SBC."

Commissioner Carl W. Wood called the case "one of the most complex and heavily litigated of our telecommunications proceedings." It resulted in four draft decisions that sought rate increases as high as 53.5%.

In the end, Wood's proposal prevailed.

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