AT&T; Challenges SBC’s Bid to Double Wholesale Phone Rates

AT&T; Corp. said Wednesday that it had spent $750 million on its local telephone network in California in the last two years, rejecting claims by SBC Communications Inc. that it had reneged on promises to increase investment in the state.

SBC has long charged that rivals like AT&T; have not been investing in the state or creating jobs. Instead, SBC contends, they simply rent SBC’s lines and telephone gear at wholesale prices the company says are below its cost. SBC wants regulators to double the rates.

In a letter to the Public Utilities Commission, though, AT&T; California President Kenneth P. McNeely said the current rates had spurred competition and, in turn, new investment and more jobs in the state.

“California represents the largest phone market in the U.S., and its importance to AT&T; cannot be overstated,” McNeely said in a separate statement. The $750 million invested in the state, he said, shows the company is committed to California and to helping the state regain its economic health.

McNeely’s letter responded to an Oct. 9 letter to the PUC from Lora K. Watts, SBC-West president. The two are squaring off as the agency gets closer to setting permanent rates that SBC can charge rivals for leasing equipment.

SBC wants to raise those rates from about $15 a month per customer to nearly $30.

A decision on rates could occur in the next few months and is likely to come on a 3-2 tally, and both sides are looking for that third vote.

“At risk is nothing less than rolling back the clock to an era where monopoly dominance once again leads to higher prices, poor customer service and stagnant innovation,” McNeely wrote in his letter.

McNeely accused SBC of using bait-and-switch tactics to gather support for a price hike.

In a summer-long letter-writing campaign, SBC persuaded cities, state legislators and other politicians to pass resolutions and write letters asking the PUC to take actions that would spur local telecommunications investments.

Then, in her letter to the PUC, Watts pointed to all the resolutions and letters and contended that the only way to encourage local investment was to raise the wholesale rates.

But the resolutions passed by 45 cities, McNeely wrote, “in no way support SBC’s arguments to double wholesale rates,” calling the effort a self-serving attempt to “mislead communities and organizations.”

Watts also had written that AT&T; and WorldCom Inc.’s MCI unit failed to deliver on promises made when the PUC lowered wholesale rates last year. McNeely, she noted, said the new rate scheme “ensures more jobs and investment in the state as companies compete for local phone customers.”

“AT&T; and MCI WorldCom have made few, if any, new investments in telecom infrastructure since [the] decision and have hired few, if any, new employees,” Watts wrote. “They have also failed to pass on savings to consumers, instead offering much the same packages they offer in states with higher [wholesale] rates.”

In his letter Wednesday, McNeely said competition had produced more investment, not monopolistic practices that predate the federal Telecommunications Act of 1996, which fostered local phone competition.

“It is the competitive investment in local infrastructure in California, such as AT&T;’s and other competitors, that has created job growth in telecommunications,” McNeely said, citing figures from the U.S. Bureau of Labor Statistics showing a surge in employment after the law was passed.

Pointing out that SBC was the most profitable major telecom in the world, McNeely said SBC could easily afford to invest more in California, contrary to SBC claims that low wholesale prices prevented such spending.

Last month, he said, SBC Chairman Edward E. Whitacre Jr. boasted about the company’s “strong, stable cash flow and overall financial strength.” Whitacre said he was confident the company would continue to generate healthy cash flows to fund growth and customer service.