Both Sides Decry Telecom Ruling

September 24, 2004
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LANSING — In granting SBC Communications Inc. a partial wholesale rate increase, state telecom regulators managed to please nobody, certainly not the parties directly involved in the rate case.

SBC contends the increase the Michigan Public Service Commission granted in the wholesale rate charged competitors to use its telecom network is not nearly enough and will ultimately hurt competition in Michigan for local telephone service.

SBC’s Michigan president, Gail Torreano, termed the Public Service Commission’s long-awaited decision “a disservice to the people of the state of Michigan.”

On the other hand, the companies that lease space on SBC’s telecommuni-cations network and sell a competing local phone service to residential and business customers say any increase was unwarranted and also argue that the Public Service Commission’s action could diminish competition by raising their cost of doing business.

“The commission’s decision to raise wholesale rates was a step back in the pursuit of maintaining sustainable telephone competition in the state of Michigan,” TDS Metrocom President Jim Butman said. “Michigan consumers will also soon realize that their ability to choose among numerous providers could be greatly reduced, and there is no doubt in my mind that they will feel the impact of this decision in their pocketbooks.”

TDS Metrocom has some 80,000 residential and business customers in Michigan, a large number of them in West Michigan. The pending wholesale rate increase, while smaller than what SBC sought, will force TDS Metrocom “to re-evaluate our business models and product offerings for both residential customers and businesses across Michigan,” Butman said.

The Public Service Commission’s decision to allow SBC to raise wholesale rates will result in a 5 percent to 15 percent increase in what competitors pay to lease network space, depending on the specific network elements they use.

The increase state regulators approved is on top of a 15 percent increase the Federal Communications Commission will allow the so-called incumbent local exchange carriers like SBC to implement for wholesale rates at the end of 2004.

Facing a potential 30 percent increase combined in the wholesale rates they pay, competitor local exchange carriers worry about their ability to remain competitive. Even before the Public Service Commission’s decision in Michigan, two of SBC’s biggest competitors in the state — AT&T and MCI — decided they would no longer enroll new customers for local telephone service.

“A number of them have left the market already. We worry this is going to drive even more of them out,” said David Waymire, a Lansing lobbyist who represents the Michigan Alliance for Competitive Telecommunications, a coalition of local exchange carriers. “Competition suffers, there’s no doubt about that.”

Competitive local exchange carriers have been steadily gaining market share since local telephone competition began in the late 1990s and now account for more than one-fourth of the phone lines in Michigan, according to the most recent annual report on competition from the Michigan Public Service Commission.

As of the end of 2003, competitive local exchange carriers held 26.5 percent of the 6.3 million local telephone lines in the state, up from a 21.7 percent market share a year earlier and from just 4 percent at the end of 1999, according to the state’s annual report on telecom competition issued in May.

SBC, by far the largest provider of local phone service in Michigan, held 57.7 percent of the phone lines at the end of last year, down from 62.9 percent in 2002 and off from 81 percent five years ago.

Competition concerns go beyond local telephone service. Waymire worries that without the competition local exchange carriers provide, SBC will slow down investments in deploying high-speed DSL Internet service in Michigan

SBC, which had applied for an increase from about $14 per phone line to $26 per line, seemed just as displeased with the wholesale rate decision as its competitors, issuing a news release with a headline stating the Public Service Commission “hangs up on Michigan consumers.”

In its ruling, the state Public Service Commission found that SBC did not justify the large increase it wanted. The costs of leasing network elements to competitors have risen over the years, necessitating an increase in regulated wholesale rates, “although not nearly as much as the company argued in its application,” the commission stated in its ruling.

A final order from the Public Service Commission remains pending, leaving both SBC and local competitors wondering about the full affects of the decision and reviewing their options.

Responding to the ruling, SBC contended that the rate increase state regulators granted would ultimately hurt competition. SBC’s argument in the two-year-old rate case was that the existing wholesale rates do not cover its cost of leasing lines to competitors and essentially equated to what Torreano often called a “competitor subsidy.” SBC contends it costs $25 per month to maintain each phone line vs. the $15 to $16 per line state regulators will now allow.

As a result, competitors have no incentive to develop their own telecom networks and create true competition, SBC argues.

“This decision will ultimately mean our economy will suffer, Michiganians will lose jobs and Michigan customers won’t realize the benefits of true competition,” Torreano said.    

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