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Study Foresees Spike in South Carolina Telecommunications Costs

Posted on: Thursday, 1 July 2004, 06:00 CDT

Jul. 1--Small and midsized businesses in South Carolina may see telecommunications costs rise an average of 25 percent as a result of a recent federal court ruling on telecommunications regulations, according to a just-released study by an industry trade group.

The cost for upstart providers of local telephone service to lease lines from established companies will at least double, according to the study commissioned by NuVox and CompTel/ASCENT, a trade group that represents 350 line-leasing companies. In South Carolina, that means companies that rent hardware from BellSouth will pay an additional $15.7 million a year, or $244 per line, the study said.

"We may be heading for a self-perpetuating decline in competition," said Jake Jennings, vice president of regulatory affairs at NuVox Communications, a Missouri-based company that has served Charleston businesses since 2000. "With even greater control over the marketplace, the Bells will be able to charge customers even more for the same service."

Eventually, companies trying to compete with the established local phone service providers no longer will be able to serve business customers and will go bankrupt in increasing numbers, the study asserts.

The regional bell operating companies, known as Baby Bells, called the report a series of guesses rather than a comprehensive study. Ted Creech, regional director for BellSouth, said the study is based on unlikely assumptions and "overestimates the potential retail impact on small businesses."

In an effort to encourage competition in local phone service, the Federal Communications Commission issued rules in August requiring the nation's four Baby Bells to continue leasing parts of their networks at cost tocompetitive local exchange carriers, or CLECs, companies such as MCI and AT&T that rent most of their network hardware and offered only long-distance service until a few years ago.

The Baby Bells appealed the decision, and a Washington federal court threw out the FCC rules in March. The Bush administration's top courtroom lawyer declined to appeal the ruling to the Supreme Court.

The study was developed to raise awareness at the FCC, which is weighing new rules, according to Jennings.

"We had to explain to them what the impact on the economy would be," he said.

Consumer advocates, business groups and newspaper editorial writers nationwide have joined CLECs in speaking out against the rule reversal. They say the Bells have been given carte blanche in charging for line access, and they are urging the FCC to draft new rules quickly.

Gene Kimmelman, senior director of Consumers Union, called the March federal court decision "the final nail in the coffin for local telephone competition."

MCI and AT&T, two of BellSouth's biggest competitors, said the decision may force them out of the local telephone business. About a week ago, AT&T announced it would stop offering new residential service in seven states, not including South Carolina. MCI is considering dropping its 3.5 million local residential customers and serving only businesses.

The Baby Bells have maintained that the ruling is good for competition and will bring prices down. All four of the telecom giants have pledged to negotiate with CLECs and promised not to raise rates for wholesale access this year.

Nationwide, the ruling will cost small and medium-sized businesses $4.9 billion a year, according to the study.

Jeff Kagan, a prominent telecommunications analyst, is not worried about business and residential consumers suffering high prices at the hands of a monopoly. He thinks Internet-based phone service and agreements between the Baby Bells and CLECs will keep a mass extinction of phone outfits at bay. Kagan also pointed out that the FCC still has the authority to cultivate healthy rivalries.

"The regulators will keep their eyes on this, and if for some reason the competition is being impacted, you can be sure they will jump in with the big stick they always carry," Kagan said.

Still, the Baby Bells control the lion's share of the business and residential phone market. CLECs are responsible for only 23 percent of corporate phone and Internet services, according to Comptel/ASCENT and NuVox.

MCI estimates that only 19 million customers have switched their residential phone service from a Baby Bell to a competitor since telecom deregulation in 1996. AT&T, one of the biggest CLECs in the country, said that of households that have the option, only about 6 percent, or 3.8 million out of 64.8 million, have switched to its local service.

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MCIA, T, BLS,

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