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FCC Freezes Rates on Leased Local Phone Lines

Posted on: Tuesday, 24 August 2004, 06:00 CDT

* Major regional carriers such as Verizon cannot raise the amount they charge competitors for six months.

* * *

WASHINGTON - Federal regulators yesterday imposed a six-month freeze on the rates regional phone companies may charge their competitors to use networks to provide local service.

The Federal Communications Commission's action places a hold on the rates MCI, AT&T and other carriers pay to lease the phone networks of the major regional companies -- Verizon, SBC, Qwest and BellSouth.

The FCC needs the time to come up with final rules on local competition. If the agency can't meet the deadline, the regionals would be free to increase lease rates by as much as 15 percent for existing customers and even more for new subscribers.

After the period ends, local phone companies such as Verizon will be able to raise prices for existing customers "moderately," or as much as 15 percent, the FCC said on its Web site.

During the freeze, the FCC will try to adopt comprehensive new regulations to replace rules struck down in March by a U.S. appeals court. Those rules required the local companies, known as Baby Bells, to sell access to the lines at a discount to foster competition in the $127-billion local-phone market.

"I am confident that we can put in place the fundamentals of sustainable competition and get this right for American consumers," FCC Chairman Michael Powell said in a statement. He said he scheduled a December vote on permanent rules.

In June, the Bush administration and FCC declined to side with AT&T in its bid for a Supreme Court reversal of the appellate court decision. AT&T, the biggest U.S. long-distance carrier, said last month it would quit seeking traditional residential-phone customers because the business is too costly.

The six-month period during which the discounts remain in effect will begin when the ruling is published in the Federal Register, which usually occurs within a few weeks after a decision is released.

The FCC decision extends the freeze into early 2005, a move urged by Michael Gallagher, the Bush administration's top telecommunications adviser. The four Bells, or the regional carriers remaining from the 1984 breakup of AT&T -- Verizon, SBC, BellSouth and Qwest -- voluntarily froze rates until the end of the year.

BellSouth said it was "troubled" and may take further action because the agency "granted itself the power to maintain the unlawful status quo well into 2005." SBC said it was "pleased that the FCC intends to issue rules that recognize the realities of today's competitive marketplace by the end of this year." Verizon said it would review the order.

AT&T said in a statement that without permanent rules, the Bells will be able to squeeze competitors by charging "whatever price the Bell companies want."

MCI spokesman Peter Lucht didn't immediately respond to a request for comment. Qwest spokesman Skip Thurman said the company is reviewing the order and wouldn't comment.

"It's unclear what the impact will be long term for the Bells as well as the competing carriers since the chance for litigation is high," said Jessica Zufolo, a Washington-based analyst with Medley Global Advisors.

The order "continues to leave the entire state of the telecom industry in limbo since we really don't know what will be upheld and what will be remanded to the FCC," she said.

During a second six-month "transition period," the FCC proposed letting the Bells raise monthly rates by $1, or 15 percent, for each line already leased by a competitor, depending on whether the line is used by a household or business. The competitors won't be allowed to add new customers at those rates, the FCC said.

That transition plan will become effective if the FCC doesn't "act on final rules" or justify the discounted rates, Powell said.

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