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At&T to End Local-Service Push

Posted on: Friday, 25 June 2004, 06:00 CDT

Company blames access ruling for decision to hang up on solicitation

AT&T Corp. said Wednesday it will quit selling local and long- distance residential service to new customers in Ohio and six other states. The telephone company, which entered the Ohio market 30 months ago, blamed a court decision that it says will bring higher prices for its use of regional networks.

AT&T said existing customers will be able to keep their service and the announcement does not affect business or government customers.

The company has 4.3 million residential customers nationwide and 30 million long-distance customers. It would not disclose how many customers it has in the states where it will stop selling new service.

Ohio had 5.9 million telephone lines from all carriers as of Dec. 31, according to the Federal Communications Commission. Of those, 940,359 lines, or 14 percent, are competitors to the principal telephone utilities, SBC Communications and Sprint.

AT&T said its decision came as a result of a court ruling that overturned Federal Communications Commission rules requiring regional Bell companies to sell access to their networks at a discount. The company said the rates it pays the Bells could increase as early as November, meaning "AT&T will likely be unable to economically serve customers with the competitive bundles currently available."

AT&T spokesman Mike Pruyn in Chicago noted that in March the Public Utilities Commission of Ohio, without a public hearing, granted SBC a 16 percent increase in the wholesale rates it charges competitors for leasing its lines. "We think that was a blow to local competition in the state."

Pruyn said SBC has another large request pending to raise wholesale rates from $18.68 to $29.81 per line. A PUCO decision is expected by Nov. 1.

AT&T said it is reassessing its residential service in another 39 states. "We foresee a future with less choice for consumers," said David Dorman, chairman and chief executive officer.

"Competitive alternatives are simply not available today for most Americans," he added, "because as AT&T loses the ability to provide them with an alternative to the Bell companies, they will have virtually no choice of telecommunications provider."

The Ohio Consumers' Counsel lamented the AT&T announcement.

"We are very disappointed, but not surprised," said Janine Migden- Ostrander. "AT&T's action is 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."

The Consumers' Counsel repeated her call for PUCO regulators to reject SBC's request to double its wholesale rates. "Increasing these rates would further devastate competition and bring fewer choices to Ohioans," she said.

Wayne Hill, executive director of the Coalition for Customer Choice, a lobbying group for SBC competitors, called the AT&T announcement a reaction to federal and state decisions.

"As a result of those decisions, we now have the absurd situation of wholesale prices some competitors pay to incumbent local telephone companies for access to their lines actually being higher than the price those same companies charge consumers. The result is predictable and residential consumers will be the losers."

Pruyn said the FCC has promised new regulations for telephone companies within a few weeks. "We're very anxious to see what is in these new rules."

In a news release, SBC scoffed at AT&T's decision to stop selling its services in Ohio.

"Local competition without AT&T is like a fish without a bicycle," the Texas-based Baby Bell said. "Consumers can rest assured that competition will continue."

SBC noted that even cable television systems are entering the local and long-distance phone market.

"If AT&T does want to use an incumbent's network, it has a simple alternative that many others in the industry have accepted: Negotiate a commercial agreement that would guarantee continued availability of the parts of the incumbent networks AT&T needs. In a world of dozens of other choices of providers and technologies, policymakers need to reassess whether AT&T's actions even matter," SBC said.

In recent years, the bulk of AT&T's revenue has come from business customers. In 2003, revenue from that segment was $24.9 billion, while revenue from residential customers was $9.4 billion.

Long-distance price wars and the substitution of cell phones for hard-wired phones have depressed AT&T's revenue for the past two years. In its 2003 annual report, the company said it expects a 7 percent to 10 percent decline in long-distance voice revenue this year.

AT&T shares (NYSE:T) closed Wednesday at $16.41, up 7 cents. The 52-week trading range is $15.86 to $23.18.

SBC Communications shares (NYSE:SBC) closed Wednesday at $24.25, up 18 cents. The 52-week trading range is $21.16 to $27.73.

Contact Jim Bohman at 225-2242. The Associated Press contributed to this article.

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