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Caps on Phone Rates Lifted

State regulators abolish controls on most land-line service, saying competition from cable and wireless carriers will check price hikes.

August 25, 2006|James S. Granelli | Times Staff Writer

Ending decades of government price regulation, the Public Utilities Commission on Thursday approved a plan that would allow California's major phone carriers to raise rates at will.

The unanimous decision to abolish most price caps came after the commission concluded that competition from cable carriers and wireless providers had grown strong enough to check rate hikes by traditional land-line phone companies such as AT&T Inc.

Just to be sure, though, the PUC reserved the power to step in and curb excessive price hikes. The commission also froze basic residential rates until 2009 to protect poor and rural customers who have less access to new technologies.

How the new rules, which take effect immediately, will affect monthly bills is uncertain. Most customers, though, pick and choose from a panoply of other features and calling plans to customize service -- and price. With 30 days' notice, phone companies can raise the price on any of those offerings.

AT&T, the state's dominant phone carrier, said the average monthly bill in California was $37.71, down 28% from five years ago.

Allowing market forces to replace regulation achieves a key goal of the last major revision of federal telecommunications rules. Congress in 1996 allowed cable and phone companies to use their networks to compete head-on for the same customers. That's why cable carriers sell phone and Internet service alongside ESPN and HBO.

Regulators in 28 other states -- including Texas, Missouri, Indiana and Kansas -- have abolished or rolled back rate caps recently. It is too early to determine the overall effect on rates in those states.

"These are new rules for a new era," said Timothy J. McCallion, Western region president for Verizon Communications Inc., California's second-largest carrier. "The biggest winners, by far, will be consumers, who will see more choices for communications and entertainment."

AT&T Senior Vice President Cynthia Marshall said Thursday's change would give big carriers the flexibility to "react more quickly" to competition.

Consumer advocates were skeptical, noting that telephone companies always could lower prices in the face of competition.

"I'm not saying this is a nuclear winter, but the temperature feels a lot lower now," said Natalie Billingsley, chief telecom analyst for the PUC's consumer protection arm, the Division of Ratepayer Advocates.

Regina Costa of the Utility Reform Network in San Francisco said the PUC failed to gather solid evidence to support its proposition that competition is strong enough to keep prices in check. Instead, the commission relied on federal surveys she said tended to overstate the amount of competition in a community.

Another wrinkle in assessing competition: The two biggest wireless phone companies, Verizon Wireless and Cingular Wireless, are owned by Verizon and AT&T, respectively. Together, Verizon and Cingular control half the wireless market.

"This is a commission that isn't interested in doing its job," Costa said. "They have basically told the world that they aren't going to do what state law requires them to do: to make sure rates are just and reasonable and to foster competition."

The cable industry generally supported the PUC's move to base phone prices on the open market, said Lesla Lehtonen, a vice president at the California Cable & Telecommunications Assn., a trade group.

Neither AT&T, formerly SBC Communications Inc., nor Verizon plans to change prices soon. Since 1994, regulated rates for basic local residential service in metropolitan areas have been $10.69 a month for customers of AT&T and $17.25 a month for Verizon customers.

But with toll calls, fees, surcharges and taxes, the typical local phone bill for an AT&T customer in Los Angeles last year had risen 31% since 1993 to $17.56. Over the same period, the price for Verizon service in Long Beach rose 46% to $25.38, according to Federal Communications Commission figures.

A majority of customers, though, order both local and long-distance services from the same company in a bundle that can allow for discounts while raising the overall cost.

Nationally, average local phone rates have risen 20% to $36 over the last decade while the overall cost of living has climbed about 28%. Over the same period, long-distance rates have plunged to $8 a month from $21, according to the FCC.

Add cellphone service to the mix and Americans on average spent $97 a month on telecommunications last year -- a 90% hike over their average bill 10 years earlier.

Thursday's changes, spearheaded by Commissioner Rachelle Chong, were the first major revisions to California's telephone rate structure in 18 years. The state has regulated phone service since 1912.

Chong said Californians enjoyed "a fiercely competitive market" with "hundreds of phone companies competing for your business."

Commissioner Geoffrey F. Brown said he harbored "substantial reservations," but voted for the new framework because the old one was "unsustainable."

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