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Verizon, AT&T Duel on Phone Rates in New Jersey

Posted on: Wednesday, 18 February 2004, 06:00 CST

Feb. 18--New Jersey regulators began hearings Tuesday on wholesale phone rates as the state's biggest phone giants, Verizon and AT&T, ratcheted up their rhetoric in media ads.

The BPU is trying to figure out exactly what wholesale rates Verizon, the state's largest local phone company, can charge rivals such as AT&T and MCI to lease parts of its phone network.

Before squaring off over detailed financial factors Tuesday, lawyers representing Verizon, AT&T, MCI, and the New Jersey Ratepayer Advocate sketched out their main points in opening statements at the request of the presiding BPU commissioner, Connie O. Hughes.

Verizon, which wants the wholesale rates raised, said the low rates give rivals no incentive to build their own networks, and create a scenario where those companies can lease a line wholesale for about $13 a month while they market higher-priced packages of local and long-distance to customers and carve out a big profit.

"This case isn't about retail prices and isn't about the end of competition," said Verizon general counsel Bruce Cohen, who added that Verizon would not be raising its retail prices.

Not surprisingly, Verizon's rivals disagreed.

"This case is very much about the future of competition," countered attorney Jim Laskey representing MCI, who cautioned the BPU to look at its prior decisions on wholesale rates. "Those who don't learn from the past are condemned to repeat it."

Laskey reminded the BPU that only after commissioners lowered the wholesale rates in 2002 did competitors like MCI and AT&T enter the local market.

Verizon serves about 6.2 million local lines in New Jersey while competitors claim close to 700,000. Verizon claims the low rates have reduced its investment in New Jersey by more than half a billion dollars since 2001, leading to fewer jobs.

The battle over wholesale rates stems from state and federal regulators' attempt to dismantle the Baby Bells' local phone monopoly and create a competitive market. Under a 1996 federal law, Verizon and the nation's other regional phone companies were required to lease their local networks to rival companies in exchange for being allowed into the lucrative long-distance market.

Last fall, the Federal Communications Commission re-examined the 1996 law in a process dubbed the Triennial Review and along with some significant changes, it included new guidelines on how to calculate two elements -- cost of capital and depreciation -- when regulators estimate how much it costs Verizon to provide phone lines to rivals.

At Tuesday's hearing, AT&T's attorney, David Levy, raised questions about the FCC's guidelines for calculating the two financial factors and said the Triennial Review doesn't require that regulators recalculate the rates using new guidelines.

He said any action by the BPU that would do so was "irrational, arbitrary, and unlawful."

In his opening remarks, Christopher White, an attorney for the state's Ratepayer Advocate, told the BPU the rates should be decreased to keep the New Jersey market competitive.

He argued that the 1996 Act called for leasing Verizon's lines at a low rate so competitors could gain a critical mass of subscribers and eventually build their own networks.

Seated in the back of the BPU's hearing room in Newark, a group of about 15 Verizon workers who belong to the International Brotherhood of Electrical Workers Local 827 watched the beginning of what is expected to be a five day legal hearing with no public comment period.

Local 827 supports Verizon's position that rates should be raised but at least one smaller local, IBEW Local 164, supports rival AT&T because its members are getting work via a contract to wire buildings for AT&T.

Taking a quick break from the hearing, Local 827 union representative Mark O. Henderson, a Verizon employee from Newark, said he hopes the BPU will rule in favor of Verizon. "If they rule against us, it will definitely negatively impact us and we'll feel it at the job level," he said.

Meanwhile, Verizon and a group largely funded by AT&T -- New Jerseyans for Technology & Economic Growth -- have run print and radio ads for several weeks and this week began a television campaign aimed, it seems, at winning over the BPU commissioners and New Jersey lawmakers.

In one, Verizon and its union and business supporters urge the BPU to "look to New Jersey's future. Not to the past." A second accuses AT&T of running misleading attack ads. In another ad, AT&T, under the guise of New Jerseyans for Technology & Economic Growth, calls on Governor McGreevey to "Protect New Jersey consumers, not the Verizon monopoly."

Whether the media blitz will influence any of the decision-makers -- the BPU's five-member commission is comprised of two Republicans including Hughes and three Democrats including McGreevey appointee BPU President Jeanne M. Fox -- remains to be seen.

What is certain is the BPU will sift through massive documents, listen to lots of cross-examination, and decide to raise, lower, or maintain rates.

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To see more of The Record, or to subscribe to the newspaper, go to http://www.NorthJersey.com.

(c) 2004, The Record, Hackensack, N.J. Distributed by Knight Ridder/Tribune Business News.

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