There is a showdown over UNE-P brewing in Florida.
The Florida Public Service Commission will decide Sept. 6 whether to slash the rates BellSouth Corp. can charge its rivals to lease portions of its network.
The state regulatory agency offered one of its commissioners to help broker an agreement between BellSouth and its competitors over the wholesale rates, but the telecom providers declined a mediator and were unable to reach an agreement within a 60-day period.
The Florida PSC staff this week recommended lowering many of the unbundled network element platform (UNE-P) rates.
That does not necessarily mean the five agency commissioners who set the policy will follow the staff's recommendations. (The staff recommended last Friday that BellSouth receive regulatory approval to provide long-distance service in Florida).
AT&T Corp. says the wholesale margins in Florida are the lowest in BellSouth's nine-state local region, arguing that the UNE rates are the largest barrier to entry in Florida.
However, BellSouth spokesman Spero Canton said competitive carriers provide local service to 30 percent of business customers and 10 percent of residents in Florida. "We have a very fertile environment for competition in the state," he said.
AT&T contends the prospect of increasing local competition in Florida is "dead on arrival." To make its point, AT&T says competitors have gained more local market share over the past few years in states such as Illinois and New York than in Florida due in part to the wholesale rate structure. In neighboring Georgia the wholesale margins are four times higher, according to AT&T.
But Canton said BellSouth should not have to subsidize competitors aiming to improve their profit margins. The UNE-P rates are based on BellSouth's cost of providing the service, not on a rate plan that would allow AT&T to realize a profit, he said. "It's not really BellSouth's role to subsidize competitive" activity in Florida, he said. "They are looking at improving their profit and loss sheet by reducing costs even if what they are asking is not realistic."
UBS Warburg downgraded three of the Baby Bells last week from a buy to a hold, citing the impact of UNE-P-based competition on the incumbent's residential customer base. The UBS Warburg report only evaluated the residential market.
BellSouth, SBC Communications Inc., Verizon Communications Inc. and Qwest Communications International Inc. are bleeding losses in 18 states, where they are required to lease their network to rivals under the UNE-P model, the analysts said in an equity report. Florida is not one of the states where the Bells are losing money, according to the report.
Though the Bells are gaining regulatory approval to offer long-distance service within their local regions, the analysts contend the additional revenue will not equal the Bell's losses stemming from the loss of local lines.
"The long-distance market will only be a partial offset as competitive conditions have dramatically reduced profitability, making it an unfair tradeoff under these conditions," they said.
UBS Warburg expects the Bells to lose 1.6 million lines in the third quarter as a result of UNE-P, up from 1.1 million lines in the second quarter. The Bells lost a total of 5.6 million lines last year as a result of UNE-P, they said.
The Bells have long argued that the UNE-P model does not give competitors an incentive to invest in a local network. But AT&T spokesman Gene Regan said that argument is "disingenuous" because the incumbents have no problem leasing long-distance lines outside of their local territories."
