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Verizon, Phone Giants Can Raise Access Fees for Rivals As FCC Rules Expire

Posted on: Tuesday, 15 June 2004, 06:00 CDT

Jun. 16--The phone industry is in for another shakeup.

Yesterday, some Federal Communications Commission rules expired, allowing the major phone companies -- such as Verizon Communications Inc. -- to set some of their own prices when they lease access on their lines and equipment to competitors.

Some had expected the Bush administration and FCC to ask the U.S. Supreme Court to reverse a lower court ruling that, in effect, hurt competitors such as AT&T Corp. and MCI Inc., who piggyback on the major phone companies' extensive local networks.

Chief Justice William H. Rehnquist last week declined to do it on his own, allowing the June 15 expiration deadline imposed by the U.S. Court of Appeals in Washington, D.C. to stand.

As a result, the four major regional phone companies -- Verizon, SBC Communications Inc., BellSouth Corp. and Qwest Communications International Inc., -- won't have to lease their equipment as cheaply to competing providers. The regional "Bells" were originally required to share their lines in 1996 when Congress sought to foster phone competition years after the breakup of the "Ma Bell" monopoly.

In the complex world of phone regulation, no one seems sure what the effect will be. The uncertainty is partly because the use of the phone has changed much in recent years with people relying increasingly on wireless and Internet communications.

"We're all going to be groping our way forward for the next several months," said Allen Freifeld, spokesman for the Maryland Public Service Commission, which regulates utility companies operating in the state. "It will affect the development of competition in the state, whether it develops, how it develops, where it develops and what prices will prevail. It has big implications."

Maryland regulators are determined not to slow the pace of competition. Merwin R. Sands, the commission's telecommunications director, said he's instructing phone companies to file a complaint when Verizon raises rates. That action would allow the commission to arbitrate the case, as law requires.

A wide gulf separates the two schools of thought on the recent phone decisions.

Some experts believe the government's pullback will spur investment and ideas in landline phones by non-Bells, as is occurring in less controlled sectors of communication: cable, wireless and the Internet.

"New technologies get to the consumer more quickly and over time more cheaply. It's what we've seen in the wireless market," said Braden Cox, of the Competitive Enterprise Institute, a Washington think tank that advocates free-market policies. "In the past, the government was mandating that the incumbent telephone companies share certain lines at certain prices. That's been going back and forth for eight years now, and it's never worked."

Others believe curtailing network leasing will drive up prices and hurt small phone companies who rely on the network the Bells built during a century of what was eventually deemed an illegal monopoly.

"There wasn't enough money in the world for [competitors] to come in and re-create Verizon's network and dig up the streets and run new wire," said Sands of the Maryland utility commission.

But the regulations that mandated an ongoing relationship between the Bells and their competitors have been a continual tussle. Federal courts have sent them back to the FCC for revision in three times: 1999, 2002 and this past March.

Verizon, the nation's largest local phone provider, says the consumers will benefit in the long run, as it can invest in new innovations and improved services.

Spokesman Larry Plumb said the government rules have forced the company to lease parts of its network below the company's own cost.

Verizon plans to raise its equipment lease rates, he said, though not before fall. Still, Verizon wants to be able to continue collecting usage fees from competitors.

"From our perspective, we have a pretty robust wholesale business," Plumb said. "If prices for services get too high, they're going to leave. We would like to keep as much traffic as possible on our network."

Some competitors won't be affected by the recent decisions in Washington. Providers who buy phone service at wholesale rates from the Bells and simply resell it will still be able to do so without a change in rates. Others who have constructed their own networks, such as Cavalier Telephone of Richmond, also won't be affected by changes in Bell lease rates.

"We made a decision early on that we were going to invest in a network, so this will have virtually no impact on us," said Ralph Centanni, a vice president with Cavalier, which serves the Mid-Atlantic, including Maryland.

Still, Cavalier is sympathetic to the impact of the recent decisions.

"While we may not be affected or minimally effected, our position is that that we really believe in competition and we really feel like this decision takes away consumer choice."

Global Telecom Brokers, an Owings Mills-based phone service provider to businesses, echoes that sentiment.

It is one of the companies that rents equipment services from Verizon at a discount. While the company has invested in his own equipment, switching all of its 2,000 customers to that system could take more than a year. Company executives are wary about what will happen in the meantime.

"Unfortunately, the people hurt eventually will be the consumers," said Dror Mei-Tal, the company's president. "When there's no price regulations, (the regional Bells) can charge whatever they want."

Mei-Tal has already determined he will have to shut his service in Frederick and Taneytown to cut costs and expects to raise customer rates by as much as 30 percent.

"I hope," he said, "that we'll be able to survive."

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