SBC To Seek Higher Competitor Fees

March 4, 2003
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The Federal Communications Commission ruling requiring the Baby Bells to continue leasing space on their networks to local rivals essentially puts the issue of competition back into the state’s hands in Michigan, where the largest phone company plans to push its case to charge competitors far more for that access.

With federal regulators maintaining states’ ability to regulate wholesale charges, SBC Communications Inc. anticipates the filing of a new rate case with the Michigan Public Service Commission to raise the wholesale price charged competitors to use its telecommunications network.

“We will put together a very, very good case,” said Gail Torreano, president of SBC Communications operations in Michigan.

SBC has no timeframe for re-filing the previously rejected wholesale rate increase, Torreano said. The company still needs to conduct a detailed analysis of the FCC’s order, which won’t come out for a few more weeks. A new rate case in Michigan will come after that analysis in complete.

“It just doesn’t make sense to move ahead until we have a chance to look at that,” Torreano said.

As it has done in other states, Texas-based SBC contends the present regulated wholesale rate in Michigan is set below the cost of providing network access to local service competitors and is tantamount to a competition subsidy.

Competitors claim otherwise, saying the rates for what’s known as unbundled network elements, or UNEs, is helping to foster competition for local telephone service and break the monopoly of the Baby Bells.

The status of competition or local phone service in Michigan depends on whom you ask. Torreano calls it “robust,” while the so-called competitive local exchange carriers say it’s still in its infancy, because of what they claim is interference by SBC, and that “real competition” doesn’t yet exist.

The state Public Service Commission last August rejected an earlier request from SBC to raise the wholesale fee from $14.44 to $34 per phone line and asked the telecommunications giant to provide further pricing data. Torreano expects the new rate case to propose a similar increase.

Firms that have just recently entered the local telephone market contend SBC’s wholesale fees are already too high. Pushing it higher would force them out of the local telephone business and bring emerging competition to a halt in Michigan, competitors say.

“The smaller folks are going to be squeezed out,” said Dave Waymire, a Lansing lobbyist who represents a coalition of business, consumer and telecommunications interests working under the name Michigan Alliance for Competitive Telecommunications.

But one of those competitors sees somewhat of a safety net for itself.

After investing $70 million to develop switching stations in the last two years, TDS Metrocom won’t feel nearly the effects of an SBC wholesale rate hike as other competitors, said Mark Neistat, regional marketing manager for the company.

“They can’t raise the price of our network,” Neistat said.

TDS Metrocom has about 700,000 leased phone lines in three states, including 50,000 in Michigan. Despite the partial network TDS has built for itself, the company stands with other local competitors in opposing SBC’s plans for a wholesale rate increase for access to UNEs.

“We don’t want to see them go out of business,” Neistat said. “We support competition.”

Waymire is hopeful state regulators will see things the same way. Regulating wholesale UNE rates “has helped make Michigan one of the leaders in competition,” he said.

“We feel comfortable the commission will keep doing the right thing,” Waymire said, citing the Public Service Commission’s previous rejection of SBC’s wholesale rate increase.

SBC Ameritech dominates the local telephone market in Michigan, with about 4.3 million of the 7 million phone lines. The more than 100 competing service providers licensed in Michigan, known as competitive local exchange carriers, held 12 percent of the phone lines as of April 2002, according to the most recent MPSC report published last spring on the status of telecommunications competition in Michigan.

Under terms of the federal Telecommunications Act of 1996, phone companies with a monopoly position in a state are required to allow competitors access to their networks at discounted rates. That has given birth to new competitors who lease space on the network and re-sell local phone service to residential and business customers.

In return, phone companies such as SBC were allowed to seek approval to enter long distance markets. In Michigan, SBC expects an answer from the FFC by mid-April in its bid to offer long-distance service in the state.

Terreano said local competitors now lease more than 30 percent of SBC’s phone lines. SBC claims the present wholesale rate is 60 percent below what it costs to provide competitors network access — a contention local competitors hotly dispute.

“They just make up numbers, quite frankly,” Waymire said in an example of the deep emotions over the issue.

SBC believes the local competitors, including long distance giant AT&T, can absorb an increase in the wholesale rates and still generate decent profits, Torreano said. Putting the wholesale rate at SBC’s cost also provides local competitors incentives to invest in their own telecommunications networks, she said.

“We clearly need to get into a position where we are not subsidizing our competitors. A 60 percent discount is not a good model for any business,” Torreano said. “Facilities-based competition is real competition that is sustainable and will really work for Michigan and consumers.”

Large telecom providers, including SBC Communication and Verizon, have heavily criticized the FCC’s Feb. 20 ruling that preserves local competitors’ access to the Baby Bell networks. They claim that dropping UNE regulations would have fostered more competition by forcing emerging competitors to invest in their own networks.

The FCC ruling, which came on a 3-2 vote, “provides absolutely no incentive to invest,” SBC senior executive vice president and CFO Randall Stephenson said last week during as presentation at a Merrill Lynch telecom investors’ conference.

“This is clearly a decision that is going to harm consumers because it is going to stifle innovation. It is going to stifle investment in that industry,” Stephenson said.

That includes SBC, which will “have to look hard” at its own capital investments because of the losses incurred through the discounted UNE rates. Pulling back capital investments would come even though the Baby Bells got what they wanted from the FCC on broadband services, which the agency decided to deregulate. That means the Baby Bells would no longer have to lease their broadband lines to competitors to provide broadband telecom services.

Despite the win on broadband, SBC executives have indicated the company might challenge the FCC ruling because of the UNE decision, a move that Waymire believes is nothing more than an attempt to create further instability in the telecom industry and hurt the ability of competitors to attract the capital they need to invest in their own operations.

“That’s their goal, to create as much instability as possible and continue their monopoly,” Waymire said.               

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