Phone Ruling Is Criticized by Customers

Telephone industry regulations can be baffling, but an array of consumer and business groups is sending a simple message: Don’t mess with 19 million people.

That’s how many phone lines have been switched to competitive carriers from the four Baby Bell companies that own most of the nation’s local phone networks.

The federal rules that made those changes possible -- and saved customers $10 billion a year, according to some reports -- were tossed out Tuesday by a Washington appeals court, throwing in doubt the regulations that require local phone monopolies like SBC Communications Inc. to lease their networks to competitors at reduced rates.

While SBC and other Baby Bells cheered the D.C. Circuit Court of Appeals decision, groups as diverse as the American Farm Bureau and the United Seniors Assn. rallied this week to show people how the decision affects them and their pocketbooks.

“Millions of Americans have enjoyed the benefits of competition through lower prices, increased technological innovation and better customer service,” Farm Bureau President Bob Stallman wrote in a letter to President Bush.

Pointing out that rural America especially still hasn’t seen much phone competition, Stallman said that “consumers will lose” with the reversal of competition rules. The 5-million-member Farm Bureau plans to mobilize its state farm bureaus to write letters to lawmakers.

“What’s at stake is the future of telephone competition,” said U.S. Rep. Chris Cannon (R-Utah).

Nonsense, claim the Baby Bells, which have long complained that leasing rates in California and other states are set below their costs. They object to the fact that AT&T; Corp. and other carriers can rent phone service cheaply from them and sell it to retail customers at a profit.

Verizon Communications Corp. spokesman Eric Rabe said there was “exactly zero evidence” that retail prices for phone service would go up as a result of the court ruling. He said the market was dictating retail prices, so the issue at hand was “profits for AT&T.;”

SBC, California’s dominant local phone company, this week extended an olive branch to AT&T;, WorldCom Inc.’s MCI unit and other rivals. SBC Chairman Edward E. Whitacre Jr. said in letters that it was time for “direct, one-on-one talks” to negotiate “mutually acceptable prices.”

With revenue from traditional phone service falling, SBC, Verizon and other network owners are now more interested in wholesale leases to keep their networks operating. But rivals don’t think talks will go anywhere, mainly because previous talks were pointless.

“We tried that more than once,” said James L. Lewis, MCI vice president for public policy. “In no case did the Bells come in with a reasonable offer to allow us onto their networks.”

Few competitors like piggybacking on the Baby Bells’ equipment. But building a phone network from scratch is prohibitively expensive. The federal Telecommunications Act of 1996 allowed regional Bell companies to sell long-distance service in return for granting competitors access to their local lines.

AT&T; Chief Technology Officer Hossein Eslambolchi said the company needed to use Bell gear until new technology could bypass it -- something at least two years away.

“I’m looking at every option to get off their networks,” Eslambolchi said. “Every year, I write them checks for $9.5 billion. It’s the single highest line item in our cost structure. That’s high-octane profit for them. The cost of running our network is nowhere close to $9.5 billion a year. And we don’t even get good service from them, either.”

In an internal memo obtained by the Los Angeles Times, AT&T; Corp. Chairman David W. Dorman told the company’s 55,000 U.S. employees that the court’s decision would make it hard to compete. “In fact, if this decision were to stand, companies like AT&T; would have no option but to stop offering competitive local service in most markets this year,” he wrote.

AT&T; and other Bell competitors are counting on the Federal Communications Commission to appeal Tuesday’s ruling to the U.S. Supreme Court. A majority of the commission has said it would do just that, but Chairman Michael K. Powell, who opposed the competition rules in a forceful dissent, isn’t going to make it easy.

Powell, who normally can instruct staff lawyers to appeal a decision, is calling for a vote on whether the FCC should take the case further up the judicial ladder. His efforts are expected to fail, but they will give him another opportunity to blast the majority and explain to the nation’s high court why it shouldn’t take the case.

FCC spokesman David Fiske said the vote might be unusual, but Powell wants to make sure that there is an orderly procedure to follow.

Ultimately, though, it may be the power of the White House that determines whether the U.S. solicitor general and the administration back the majority view, and lobbyists for both the Bells and their rivals already have been calling on White House aides.

“With threats of 19 million people getting unplugged, jobs being lost and rates going up, this is not what the administration wants in an election year,” said one Washington telecom expert.

Meantime, state regulators heading into a national meeting of utility commissioners this Sunday in Washington are split on what to do about a 9-month proceeding each state has been conducting to determine the level of competition that exists.

Under the rules that were reversed, the states were examining every market, every switch, every central office, to see if competitors had enough of their own equipment installed. If they do, that area is deemed to be competitive and the Bells won’t be required to lease their lines and equipment to rivals at mandated wholesale rates.

In California, where 1.8 million lines have been switched to competitors, Verizon asked the state Public Utilities Commission after the court ruling Tuesday to suspend the proceedings. Commissioner Susan P. Kennedy, who is overseeing the hearings, said she would decide what to do next week. Meantime, no key events were scheduled in a process that is nearly complete.