Proposed FCC Phone Change Draws Protests

Times Staff Writer

State utility regulators, consumer advocates and long-distance companies lined up Tuesday to charge that proposals to scuttle federal rules on leasing phone equipment would wipe out six years of efforts to foster competition for local service and eliminate billions of dollars in potential consumer savings.

They plan to step up lobbying efforts at the Federal Communications Commission to block any significant changes to rules allowing competitors of SBC Communications Inc. and other regional Bell companies to rent their networks and equipment at steeply discounted rates.

"From our perspective, it would be a disaster if the [discounted rates] were eliminated," said Natalie Billingsley at the California Public Utilities Commission's Office of Ratepayer Advocates. "It is the only reason we have started to see some competition."

Members of the National Assn. of State Utility Consumer Advocates, which includes public utility agencies in many states, expect to talk by phone today to develop a response to the proposed changes, said Regina Costa, research director at the Utility Reform Network in San Francisco.

"We'll oppose any changes with all our might," Costa said.

Among changes being discussed, the FCC would severely curtail or eliminate the states' ability to regulate switch rates, or the price competitors pay the Baby Bells to lease equipment to route calls. The Baby Bells then would be free to set higher rates.

Competitors have said such a move would stifle further competition and could cause them to pull out of local markets, allowing monopolies to be recreated.

State utilities officials expect some change to rules adopted under the Telecommunications Act of 1996, which is aimed at fostering more competition, said Robert Nelson, a Michigan public utilities commissioner. But the officials are trying to "preserve a state role in the process."

"We have set pricing at reasonable levels and have allowed competition to flourish," said Nelson, who chairs the telecom committee of the National Assn. of Regulatory Utility Commissioners.

California PUC Commissioner Loretta Lynch said she fears any major changes to the rules will be anti-competitive and that the states are in the best position to decide what part of the networks could be leased at regulated prices and what parts can be leased at market rates.

"The states know their networks best," Lynch said. "The FCC doesn't have the researchers available to decide state-by-state what's appropriate."

She worried that the federal agency may be "using a meat cleaver where a scalpel is needed."

Nelson hailed a report issued Tuesday by the Competitive Telecommunications Assn., a Washington trade group mainly for Bell competitors. The report projected that current FCC rules could save consumers nationwide $9.24 billion a year in lower phone bills.

"If the FCC preempts the states [from their current role], you could kiss that $9.24 billion savings goodbye," said president H. Russell Frisby Jr.

Rivals to the Baby Bells have lured away about 8 million local phone customers.

For its part, the FCC tried to quell rumors about what rules adopted under the competition-focused Telecommunications Act will be changed in its yearlong triennial review, which is expected to be completed by mid-February.

"There are numerous proposals before the commission, and it is premature to say at this point what the commission will adopt," said spokesman Michael Balmoris.

There is no written draft that has been circulated among the five commissioners, one source said, and any final decision probably will be appealed to the federal court.

FCC Chairman Michael K. Powell has made it clear in public comments that he disapproves of the current system and that true competition can exist only when Bell rivals build their own phone networks.

A number of Wall Street analysts do not believe the FCC will adopt any proposal that significantly rolls back or eliminates the rules.

"We expect the status quo to be maintained," said Richard Klugman at Jefferies & Co. in New York.

"I suspect they're not going to be too cute. They'll come up with some reasonable compromise that would be logical, amenable to all parties and also can hold up in court."

Researchers at Jefferies, Kaufman Bros. and UBS Warburg issued reports Tuesday saying that they expect some level of discounted rates to continue.

AT&T; Corp. said it has local equipment in place in major metropolitan areas and that it is using its switches for business traffic. It still must lease switches for residential customers.

The Baby Bells have long argued that they should not be required to lease equipment and access to local customers at below-cost prices.

But long-distance companies say they shouldn't be required to install equipment until they can build up enough of a market share to justify the expense.

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