PUC to Hear PacTel Plan for Spinoff : Telecommunications: Regulators will decide whether the company should reimburse ratepayers as part of its bid to create a wireless business.
State regulators will begin hearings Wednesday into Pacific Telesis’ bold plan to spin off its wireless operations into a separate company, amid rising indications that the telecommunications giant could be required to pay consumers hundreds of millions of dollars to complete the split.
Consumer groups as well as the staff of the state Public Utilities Commission are asking that PacTel be required to reimburse California telephone users--possibly as much as $500 million over the next 20 years--as a condition of getting commission approval for the split. Subscribers are owed the money, these groups say, because ratepayer funds were used to develop cellular phone technology over the last four decades.
At stake is PacTel’s ambitious proposal to split off its newer telecommunications ventures--primarily its cellular and paging units--from its conventional phone services to reduce government oversight of its business and spur the growth of the wireless operations.
The plan, the first of its kind in the country, has taken on increased significance in recent weeks as Congress has studied several proposals for regulating the exploding number of new wireless communications technologies. Reaction from California regulators is being closely watched by other regional Bell phone companies, which are said to be studying the proposal as a potential model for operating under any new federal controls.
PacTel has said it is willing to offer some reimbursement to ratepayers and had been negotiating privately with the commission’s staff over exactly how much. However, the talks fell apart three weeks ago and the two sides prepared to take their cases before the PUC board.
According to sources, the two sides weren’t close to an agreement. Some members of the PUC negotiating team wanted a $500-million reimbursement, to be paid out over the next 20 years, while PacTel reportedly would not budge beyond $100 million to be paid out over the same period.
“We think we can do better than that for the ratepayers. We think we should do better,” said one PUC staff member. “We’ll let the commission decide.”
PacTel officials declined to comment on the PUC negotiations.
Commission staff members say the new company should compensate ratepayers because it would be taking away cellular franchises in Los Angeles, Sacramento and San Diego that the federal government awarded to PacTel in the early 1980s because it was the regulated telephone company. These franchises, which currently serve an estimated 500,000 customers, cover territories with about 16 million potential subscribers.
While the PUC does not have the legal authority to block the spinoff, it does have considerable informal clout to extract what it deems appropriate compensation for ratepayers.
Potential financial backers of the new wireless company have made it clear they will not invest in it unless the commission gives the split--along with any potential financial settlement--its unqualified approval.
And Wall Street financiers scheduled to underwrite the wireless company’s initial public stock offering of $750 million to $1 billion have said PUC approval of the spinoff is critical to a successful stock sale. Sam Ginn, now PacTel’s chairman and architect of the spinoff, is set to lead the yet-to-be-named wireless company and would have a still-undetermined ownership stake in it.
PacTel wants swift commission approval so it can complete the stock offering while the market is still strong.
The PUC will listen to testimony for more than a dozen days this month and is expected to make a decision by early September.
In addition to deciding what, if any, reimbursement is due ratepayers, the PUC is also being asked by other consumer activists to ensure that splitting off the innovative wireless service from the standard, wire-line phone service would not create a two-tier system of telephone usage: one for the rich who can afford the sophisticated mobile services and the other for those who can’t.
Robert Gnaizda, a lawyer who frequently represents low-income consumers, argues that poor California residents would be harmed by the split because it would rob the surviving phone company of its most advanced technology. As a result, he says, subscribers to the remaining network will not have access to the sophisticated services that are forecast for the coming generation of wireless communications devices and will be cast as the “have-nots of the information age.”
