SBC Seeking Capitol Support
In its push to double wholesale telephone rates, SBC Communications Inc. is taking its case to lawmakers in Sacramento in what critics say is a clear attempt to go around regulators.
California’s dominant local phone company acknowledges that its staff lobbyists have been buttonholing legislators in the last few weeks and asking them to send SBC-worded letters to the Public Utilities Commission seeking a “careful and thoughtful review” of the rates.
But SBC denies that it is trying to circumvent the PUC. Instead, it says the letter campaign is intended to highlight how important the rate increases are for the future of the company -- and the state.
“The letter draws attention and awareness to who is investing in this state, who is creating jobs and who is trying to take care of California workers,” said Lora K. Watts, SBC California’s president for external affairs.
So far, the effort appears to have succeeded with at least five Assembly members, who have sent letters to the PUC urging the agency to reevaluate wholesale pricing.
Critics say, however, that it is local phone competition that spawns jobs and investments. Higher wholesale prices, they argue, could in fact stifle consumer choices and economic growth.
The letter-writing campaign “amounts to an unacceptable end run” around the PUC, said Nikayla Nail, executive director of California Assn. of Competitive Telecommunications Companies, which represents Baby Bell rivals.
Nail and other critics contend that SBC is trying to gain an advantage by shifting the debate from regulators to politicians -- a tactic it employed with some success this year in Illinois.
“This letter recasts the debate in terms that legislators and certain local interest groups could understand better, instead of rate making before the PUC,” said Paul Fadelli, executive director of Californians for Telecommunications Choice, a consumer group aligned with SBC rivals to promote competition. “We want the rate case to get its fair hearing before the PUC and not get politicized.”
Wholesale rates are important because they govern how much customers pay for local phone service and how many companies compete for their business. The regulated lease rates grew out of the Telecommunications Act of 1996 as a way to encourage competition in local phone service. Each state sets its own rates.
SBC has long complained that the interim rates California allows it to charge competitors such as AT&T; Corp. for access to its lines are below its costs. Competitors counter that the rates are the only way they can crack SBC’s monopoly on local service and build a large enough customer base to justify installing their own gear.
Appeals to lawmakers are typical, but observers say it is much less common for a company to send form requests to numerous legislators urging them to file letters of support with regulators in a pending proceeding involving the business.
The PUC is in the process of setting permanent wholesale rates -- a complicated, federally mandated process that is crucial to the telecommunications industry. PUC President Michael R. Peevey said he shared the concern over investment “and will give these letters the same consideration as comments from other interested parties and consumers.”
According to Fadelli, SBC is focusing on jobs and investments to build a case for raising rates. He said that approach has the added advantage of getting the support of unions, traditional supporters of the Democrats who control the Legislature.
The wholesale rates set 16 months ago on an interim basis are among the lowest in the nation and below SBC’s cost, Watts said. Higher wholesale prices would lead to profit that could be used to build new facilities and hire more people, she said.
SBC employs 48,500 statewide and commands more than 80% of the local phone market in its California territory.
The company’s main rivals, AT&T; and WorldCom Inc.’s MCI unit, said the letter-writing campaign was part of SBC’s effort to regain the fraction of its market share lost to rivals. “The California local phone market has just started to thrive,” MCI spokeswoman Carolyn A. Tyler said. “It would be a travesty if monopoly practices succeeded in deterring that progress.”
The letters are similar to ones SBC sent to cities, chambers of commerce and others during the last three months. That effort resulted in 41 resolutions being passed and sent to the PUC, company spokesman John Britton said.
The letters also contended that AT&T; and MCI reneged on vows to invest in California and that they have cherry-picked the wealthiest customers from SBC.
AT&T; Chairman David Dorman called such assertions “factually incorrect.” His firm never made any such vow, Dorman said, and at any rate, AT&T; is investing in California. He noted that 25% of its local residential customers in the state are on “lifeline” accounts, which provide basic phone service at a discount to poor people.
At this point, it’s unclear how many lawmakers will go along with SBC’s request. Aides to a dozen Republican and Democratic senators and Assembly members solicited by SBC said their bosses weren’t sending any messages yet to the PUC on behalf of the San Antonio-based phone company.
The Assembly Utilities and Commerce Committee and its chairwoman, Sarah Reyes (D-Fresno), don’t want to “micromanage the PUC,” said committee consultant Dan Kim. “We’ve seen what happened in Illinois. The Legislature should never get involved with implementing pricing issues. It should leave that up to the PUC.”
In Illinois, an SBC blitz -- aided by labor unions and the apparent backing from Chicago Mayor Richard M. Daley, who is a brother of SBC’s president, William Daley -- resulted in a law that nearly doubled phone rates.
Lawmakers took only four days to introduce the bill, pass it and get it signed by the governor. But a federal court quickly halted the measure from taking effect, saying it conflicted with federal law.
That kind of effort is not in SBC’s game plan here, Watts said.
“The fact is, we are in a much different state here,” she said. “We have been working very, very cooperatively with the PUC. We don’t have any intention of running any legislation through. We’ve openly talked about not doing what we did in Illinois.”
