Is State Phone Service Competitive?

November 24, 2004
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LANSING — Arguing that the marketplace, not regulators, should ultimately decide rates, SBC Communications Inc. wants state regulators to get out of the business of overseeing prices charged for local telephone service.

SBC late last month petitioned the Michigan Public Service Commission to declare that a competitive market exists in most of Michigan’s Lower Peninsula for residential and business local telephone exchange service.

If the request is granted, state regulators would no longer review local telephone rates that SBC and other service providers charge.

In seeking the declaration, SBC contends the market meets all five conditions outlined in the Michigan Telecommunications Act for declaring a competitive market.

The law requires only that it meet three.

Michigan does have the most competitive market in America. Government should not, we think, be in the business of setting the price for phone service — customers should,” said Matt Resch, communications director for SBC in Michigan.

“When phone companies have to compete more aggressively and more vigorously for customers’ dollars, good things happen.”

The commission early next month will decide whether to grant the SBC request or proceed with a contested case hearing that could take several months to adjudicate.

Regulators also could choose not to take any action and allow the competitive declaration to take effect automatically.

The commission recently began taking public comments on the petition from SBC, by far the largest local telephone service provider in Michigan.

Comments are due by Friday. The commission will decide soon after whether to proceed to a hearing on the petition.

SBC still dominates the market in Michigan for local telephone service, although competitive local exchange carriers have been steadily gaining market share since competition began in the late 1990s.

According to a public service commission report on competition, the competitive local exchange carriers — which lease space on SBC’s network to provide a competing local service — accounted for more than one-fourth of the phone lines in Michigan as of last year.

At 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 annual state report on telecom competition issued in May.

SBC 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.

The Texas-based SBC argues that the growth of the competitive local exchange carriers, the growing use of wireless phones and the emergence of Internet-based phone service, known as Voice over Internet Protocol, that’s expected to grow rapidly in the coming years have combined to make Michigan a competitive market.

The association representing competitive local exchange carriers, as with anything involving SBC, sees it far differently and expects “vigorous” opposition to the petition, said David Waymire, a spokesman for the Michigan Alliance for Competitive Telecommunications.

Waymire argues that SBC still controls a majority of the market in Michigan — 70 percent within its own service territory — and that competition relies heavily on a local exchange carrier’s ability to lease space on SBC’s network to provide a competing service.

“There’s no negotiating rates with a monopoly — and right now there’s a monopoly on that phone line coming into your house,” he said.

Waymire says SBC and the state’s second largest local phone company, Verizon, also refuse to compete directly to create “real” competition, and that it’s unfair to claim that wireline competition competes with wireless and Internet-based phone services because those industries are unregulated, he said.

“No economist would agree with that analysis,” Waymire said of SBC’s assertion. “We believe it is obviously premature to declare that we have a competitive market.”

Verizon, which held 11.2 percent of the market in Michigan as of last spring, is reviewing the SBC petition and, at least publicly, is noncommittal about whether to support or oppose the request.

“We are currently reviewing the petition at this point in time,” Verizon spokesman John Van Wyck said.    

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