FCC Deals Blow to Bell Rivals
Federal regulators on Wednesday called a halt to the discounted lease rates that encouraged competition in local telephone markets and helped customers save as much as $10 billion a year.
The Federal Communications Commission voted 3 to 2 to stop regulating wholesale rates in the residential market by early 2006. The action, cheered somewhat by the nation’s four regional local phone giants, was widely criticized.
The regional carriers -- called Baby Bells because they were created in the 1984 breakup of the original Ma Bell monopoly, AT&T; Corp. -- said the FCC didn’t go far enough and also should have phased out the ability of rivals to rent their networks at big discounts to serve business customers.
But the rivals and consumer groups said the agency essentially killed local phone competition at both levels, soon hitting consumers with higher phone bills and giving back to the regional giants their local monopolies for land-line service.
“This item decidedly does not attempt to make all sides happy,” FCC Chairman Michael K. Powell said.
But analysts like Blair Levin at research firm Legg Mason Wood Walker said the overall result favored the Bells, which immediately will be allowed to raise their monthly wholesale rates by $1 a line. Higher rates can be phased in later.
“Basically, it’s over,” Levin said. “The Bells have won.”
The decision, for the most part, was expected. The FCC had been stripping away regulated pricing in the residential market since an appeals court last March threw out key local phone competition rules. Those rules required the Bells to lease their lines and gear to rivals at prices the Bells said were below their own costs.
What angered the panel’s two Democrats was the Republican majority’s decision to force a transition off regulated rates in 12 months after final rules were published, probably in mid-January. They wrangled with the majority early into Wednesday morning to lengthen the transition period for rivals serving some 17 million households.
“It’s very difficult to make this big of a shift this quickly,” said Commissioner Jonathan S. Adelstein, a Democrat. “It’s not going to be an easy transition.”
Indeed, he said, it is “almost punitive” to tell competitors, which had spent billions of dollars to build some of their own facilities and follow the law, that “because we decided to change the rules, you have to change your business plan and maybe go out of business.”
Worse, he said, the ripple effect of higher prices on business customers will hurt the overall economy. And the other Democratic FCC commissioner, Michael J. Copps, warned of harm to the small-business community, which is recognized as the major creator of new jobs.
Copps said the majority decision “dismantles wire-line competition” in disregard of the Telecommunications Act of 1996, which was designed to end local phone monopolies and spur competition.
“Brick by brick, this process has been underway for some time,” he said. “But today’s order accomplishes the same feat with all the grace and finality of a wrecking ball.”
With the two biggest competitors, AT&T; and MCI Inc., pulling out of residential wire-line competition, he said, the FCC’s decision will force others to follow suit.
“In their wake, we will face bankruptcies, job losses and customer outages,” Copps said. “Billions of dollars of investment capital will be stranded. And down the road, consumers will face less competition, higher rates and fewer service choices.”
That simply isn’t true, said James C. Smith, a senior vice president at SBC Communications Inc.
Smith said that SBC, California’s dominant local phone company, faced significant competition from cable and new Internet-based calling plans as well as from wireless providers.
