Phone Users May Get None of Merger Savings

California regulators Wednesday tentatively blessed two giant telephone industry mergers, but customers won’t see much of the billions of dollars the companies expect to save.

SBC Communications Inc.’s $16-billion acquisition of AT&T; Corp. and Verizon Communications Inc.’s $8.5-billion purchase of MCI Inc. could reduce their expenses in the state by a combined total of up to $2.7 billion, consumer advocates say.

State law requires phone companies to split any such savings with customers, as SBC did when it bought Pacific Bell parent company Pacific Telesis Inc. in 1997.

But draft decisions by Public Utilities Commission members Susan P. Kennedy and Michael R. Peevey would exempt the companies from that requirement, prompting outrage from consumer advocates.

“Consumers got hosed,” said William R. Nusbaum, senior telecom lawyer for the Utility Reform Network. “Under both mergers, consumers are out at least a billion bucks, which is going into the pockets of shareholders.”

Kennedy and Peevey, both of whom usually side with SBC and Verizon, argued that no rate reductions were necessary because the sharing provisions of the law don’t apply in these cases.

“Because the benefits of the merger will be passed through to California consumers through competition and market forces, there are no policy grounds for mandated sharing of those benefits,” the two commissioners said in the SBC draft decision.

Another SBC draft decision, by Administrative Law Judge Thomas R. Pulsifer, would force the new company to give $329.6 million to customers over six years.

The commission is scheduled to make a final decision on the mergers at its Nov. 18 meeting, among the final hurdles before the deals can be concluded. State and federal regulators are reviewing the deals.

The Federal Communications Commission is expected to discuss the mergers at its Oct. 28 meeting.

Nusbaum and other consumer advocates held little hope that the commission’s final decision would deviate much from the tentative rulings.

“They searched through a rather potent evidentiary record, discarded all of the obvious facts and hung their hat on unverified, self-serving SBC pablum to justify their pre-ordained outcome,” said Michael Shames, executive director of the Utility Consumers’ Action Network in San Diego.

San Antonio-based SBC -- which would become the nation’s largest telecommunications carrier and operate under the historic AT&T; name -- said it was pleased with the draft by Peevey and Kennedy, saying that Pulsifer’s proposed decision contained many flaws.

But the company said it was disappointed that the two commissioners would require it to offer high-speed digital subscriber line, or DSL, Internet service on a stand-alone basis and would make it increase its philanthropic spending by $57 million over five years.

Verizon spokesman Jonathan Davies said the New York-based company already offered DSL on a stand-alone basis. He said Verizon was pleased that the commission was on schedule to approve the merger this year and that it found no adverse effects on competition.

In the Verizon case, Kennedy took the unusual job of acting as the hearing officer, so hers was the only draft decision released. She issued early rulings to deny evidentiary hearings and to exempt the companies from the sharing requirement.

Local companies such as SBC and Verizon control 95% of the residential land-line service in California, according to the commission’s statistics from last year. For SBC, California represents a third of its total customers in the 13-state area it services.