Could Telephone Rates Become a Campaign Issue?

The finer points of technology policy are rarely voiced in presidential stump speeches, but fears of rising phone bills may soon join concerns over higher gasoline and dairy prices as a hot election issue.

Inside Washington and in state capitals across the country, regulatory, legal and political battles over the nation’s telephone network have raged for more than a year. Now, groups as diverse as those representing the elderly and industry lobbying organizations backed by AT&T; Corp. are weighing whether to launch ad campaigns showing how telephone regulatory policy could pinch people’s pocketbooks.

On their own, “telephone rates would probably have trouble getting a lot of traction,” said Washington communications lawyer Gerald Waldron, a Democrat. “But if you tell this story as part of a larger discussion about the rising price of milk and gas, then suddenly three things make a pattern and you have a campaign issue.”

Walter B. McCormick Jr., president of the United States Telecom Assn., also foresees the prospects of the campaigns of President Bush and Sen. John F. Kerry (D-Mass.) bringing phone prices and policy into the broader debate about the nation’s economic fortunes.

“This is an election about economic growth and job creation,” said McCormick, whose Washington trade group represents local phone companies. “The telecom industry certainly plays a pivotal role on these important issues, which will be vigorously debated in key battleground states.”

At issue are rules that require Baby Bell local phone companies such as SBC Communications Inc. -- California’s dominant provider -- to lease their lines and equipment at discounted rates to rivals like AT&T.; The rules, aimed at spurring competition in the local phone market, have helped AT&T; and others wrest 19 million lines from the Bells by offering prices that are 15% to 25% lower.

In all, experts estimate, consumers have enjoyed annual savings of $11 billion because of the rules.

The Baby Bells oppose these regulations, however, saying that they unfairly force them to subsidize their rivals and stifle innovation and investment. This year, the Bells won an appeals court decision tossing out the rules.

The Bush administration and the Federal Communications Commission have until June 15 to try to take the case to the Supreme Court or the appeals court decision will stand, leaving the Bells free to charge higher lease rates. Meanwhile, at the urging of the FCC, long-distance and wireless companies big and small are trying to settle their differences with the Bells.

To be sure, the prospects that phone competition could become presidential campaign fodder seems farfetched to some.

“Most people can’t even figure out their phone bill,” quipped Robert D. Atkinson, an economics and technology expert at the Progressive Policy Institute, a liberal Washington think tank.

Yet, like gasoline prices, telephones touch nearly every business and home. What’s more, the telephone industry has a long history of mobilizing its 860,000 workers to support its political and regulatory agenda -- sometimes tussling with consumers in the process.

For instance, state regulators in Florida ignited a public outcry two years ago when they supported a phone industry effort to push through a record $350-million rate increase, which would have boosted phone bills by nearly $7 a month for the average household. The regulators backed down, in part because state residents inundated them with more than 7,000 letters in less than two months.

The battle lines are similarly being drawn in the current phone fight.

Telephone carriers and Internet and computer companies donated more than $1.4 million to Bush’s presidential campaign through the end of April, according to the Center for Responsive Politics. That’s almost twice the $780,669 that the same industries gave to Kerry, the presumed Democratic nominee.

Bush’s and Kerry’s positions on telephone rate regulation aren’t clear-cut, however.

Kerry supports providing a tax credit to telecommunications companies that deploy high-speed Internet access in underserved parts of the country. But he hasn’t said anything specific regarding telephone rates, and his campaign couldn’t elaborate on his views on the matter.

Bush, for his part, finds himself in a quandary over telephone rates.

Michael K. Powell, whom the president appointed as chairman of the FCC in 2001, supports quickly cutting what he sees as regulatory red tape so that market rates can govern telephone prices and encourage the modernization of telecom facilities.

But Kevin J. Martin, a Republican FCC commissioner -- whose wife, Catherine L. Martin, is a top aide to Vice President Dick Cheney -- has sided with the agency’s two Democrats. Martin wants a more gradual phaseout of current rules and supports a Supreme Court review of the appeals court decision.

“The Republicans are split,” said Mark Cooper, director of research for the Consumer Federation of America, a watchdog group in Washington. “They don’t want a fight among their party members or the phone companies,” which are key GOP supporters.

Cooper said there was talk in political circles that a “huge TV advertising campaign on phone competition,” financed by the long-distance companies, could sway enough voters to make a difference in the election.

Whether they will actually pull the trigger on such a campaign remains to be seen, however.

H. Russell Frisby, president of a trade group representing Bell competitors called CompTel/ASCENT, said he was “seriously thinking” about an ad blitz on phone rates.

In fact, he said, the ads already have been produced. Telephone rates, Frisby added, “absolutely have the potential to become a presidential issue.”

Frisby declined to show the ads or describe in any detail what they say. But he noted, “We would certainly point out that if telephone rates rise, it happened on Bush’s watch.”

AARP, a nonprofit advocacy organization for people 50 and older, said it was also mulling over whether to launch a national ad campaign focused on phone rates. AARP was deeply involved in blocking the proposed Florida increase.

Already, dueling ads on phone rates have been making the rounds inside Washington, appearing in Roll Call, a Capitol Hill newspaper.

One ad, taken out in March by an AT&T-backed; group called Voices for Choices, warned that phone prices were sure to rise if the FCC rules went away. The ad featured a U.S. map filled with the faces of consumers.

The other ad, from the United States Telecom Assn., praised the court decision striking down the FCC rules. If the decision stands, it suggested, huge job gains will result.

“1.2 million new jobs.... Now this is the map Americans want to see,” said the ad. It attached numbers to each state, representing the job creation that supposedly would occur if the FCC’s regulatory mandate were lifted.

In the eyes of Blair Levin, an analyst at investment firm Legg Mason Inc., the issue has the potential to sway the presidential race in four closely contested states: Ohio, Florida, Pennsylvania and Michigan.

Thanks to aggressive state regulation, Ohio and Michigan consumers have seen telecom competition flourish and phone bills shrink. Therefore, Levin said, any rate increases might influence their vote for president. Similarly, the recent public outcry in Florida over a proposed rate hike might inflame voters again.

With a close election predicted, a swing of 10,000 to 20,000 voters in any one of the four states might be enough to determine the election, Levin said. “It’s not clear the Bush administration controls gas prices,” he said, “but one could argue that they have more control over phone rates.”