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Competition Could Suffer With AT&T Exiting Ohio Local-Service Market

Posted on: Wednesday, 23 June 2004, 06:00 CDT

Jun. 24--AT&T no longer will market local residential telephone service in Ohio and six other states, the company said yesterday.

Other companies soon could follow AT&T's lead, prompting what some companies and consumer advocates predict will be an exodus of local-phone-service competition from Ohio.

MCI and CoreComm said they are thinking about exiting the local phone business in Ohio or raising prices for existing customers.

The companies blame a recent Bush administration decision that they say will drive up costs for Baby Bell competitors that lease lines from the companies.

The administration on June 9 sided with Bell companies, including SBC Communications, and declined to challenge a federal court decision that allows the Baby Bells to charge more to competitors for access to their networks.

AT&T spokesman Mike Pruyn said the administration's decision was "disastrous'' and forced AT&T's hand.

"It's a decision we didn't arrive at lightly,'' Pruyn said. "It's all about profitability and our outlook for profitability.'' AT&T will continue to serve existing local residential customers and accept orders from new customers. But it will stop all mass-media and direct-mail advertising and telemarketing of residential local service.

"It's tantamount to exiting the market,'' Pruyn said.

AT&T will continue marketing local service to business customers in Ohio and long-distance service to residential and business customers.

AT&T has 4.3 million residential customers nationwide and 30 million long-distance customers. It would not disclose how many customers it has in the seven states affected by yesterday's decision.

The company said it will continue to sell its voice-over-Internet-protocol services in the seven states. The service comes into homes over broadband connections such as digital subscriber lines or cable, bypassing access fees that have been a source of contention between AT&T and its regional rivals.

SBC, which has battled AT&T on the network-leasing rules, criticized AT&T's announcement. SBC, which raised its network lease rates this spring, reiterated an earlier pledge not to raise lease prices again this year.

"This cheap PR stunt should be seen for what it is: political grandstanding aimed at intimidating policy-makers and elected officials everywhere,'' SBC said in a statement. "Nothing has changed in the market. AT&T is paying the same price today as it did last month.'' Ohio Consumers' Counsel Janine Migden-Ostrander said AT&T's decision is disappointing but not surprising.

"AT&T's actions are a direct result of a federal climate that has failed to provide any assurance that competitors will be able to use the local facilities they need at a fair and reasonable price,'' she said.

CoreComm is re-evaluating its local-residential-service business but has not made any decisions on service or rates, spokesman Bruce Bennett said.

According to FCC data released last week, companies such as AT&T, CoreComm, MCI, Sprint and others served 940,000 of the state's nearly 6.9 million phone lines as of Dec. 31.

An MCI spokeswoman said the end of the network-leasing rules could force the company to raise rates in some markets and leave others, but she said no decisions have been made about Ohio.

Jeff Kagan, a telecommunications analyst in Marietta, Ga., said he doubts that other companies will follow AT&T's move, predicting they will wait to see what the new FCC network-access rules look like.

The FCC is attempting to write new rules to replace the ones overturned by the court.

"AT&T is jumping the gun and making a dramatic statement to the FCC,'' Kagan said. "The statement is, `If we can make money in a state, we'll compete there, and if we can't make money, we won't compete,' and the FCC needs to heed that.'' The FCC needs to write rules that satisfy the Bells and their competitors, something it has tried unsuccessfully to do for eight years, he said.

Others suggested that AT&T was trying to spite President Bush.

"The states that are mentioned are election-sensitive states,'' said Scott Cleland, chief executive of Precursor, an investment-research firm.

In addition to Ohio, AT&T said it will stop marketing local service in Arkansas, Louisiana, Missouri, New Hampshire, Tennessee and Washington. It said it is reassessing the 39 other states where it provides local residential service.

--Information from the Associated Press was used in this story.

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T, MCIA, COMM, SBC,

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