California regulators have raised the wholesale rates SBC Communications Inc. is authorized to charge rivals, inciting at least one phone company to partially cease marketing and drawing criticism that the price increases will hit the wallets of consumers and businesses.
The ruling affects about 1.4 million lines San Antonio, Texas-based SBC leases to competitors and suspends further review of SBC’s UNE rates until February 2007. SBC is authorized to charge competitors $16.53 on average to lease a local phone line, up from $13.94 under the ruling by the California Public Utilities Commission.
SBC spokesman John Britton says the wholesale rates remain artificially low. The average rate is the 42nd lowest wholesale price in the country, Britton says, and still falls far below what it costs the company to lease a line to competitors:
$29.92. The average wholesale rate was originally set in 1999 at $23.18 following three years of extensive research, yet California regulators lowered the rate by about $9 in May 2002 without any new facts, Britton says.
“We are just continuing to subsidize customers,” he says.
Not everyone agrees with that assessment.
The wholesale rate is among the lowest in the country because it is so cheap to provide phone service in California, says Regina Costa, telecommunications research director of The Utility Reform Network (TURN), a San Franciscobased consumer group representing residential and small business customers of California utilities. Costa says this is because California is a densely populated state, characterized by big cities where incumbent phone companies like SBC maintain relatively short local loops, a major piece - and expense - of the phone network.
Costa says she does not know how many telecom companies the recent ruling affects, noting smaller companies don’t all have the resources to participate in the regulatory proceedings. There were approximately 400 CLECs registered in the state as of Sept. 1.
Telscape Communications, a company with 90,000 customers targeting the Hispanic residential market in California and Nevada, announced plans to stop marketing in Fresno, Calif., after state regulators set the new wholesale rates. The Monrovia, Calif., company, which supports half of its customers on its own switching facilities, will continue supporting current customers in Fresno, but Telscape Vice President of Carrier Relations Jeff Compton says it is not feasible to expand in the area.
He says state regulators raised the wholesale rate of the local loop in parts of Fresno to $26.87, up from $19.69.
The new wholesale price of the local loop - which is part of the underlying network, or UNE platform, used to resell local phone service over SBC’s network - exceeds by approximately $10 what SBC is authorized to charge competitors on average to lease an entire phone line in California.
“We are not going to continue to try and pick up customers there,” Compton says, “and we are going to stop investing in the region because we cannot support a loop rate of $26.87.”
The $26.87 local loop rate affects ‘Zone 3,’ where it generally is less populated and more expensive for incumbents such as SBC to maintain a network than in big cities like Los Angeles.
Competitive telecom providers in California either can pay a statewide average to lease local loops or pay rates that fluctuate based on the designated zone.
“If a carrier uses zone pricing, the loop prices in Zone 3 are really prohibitive and they were prohibitive before and they are even more prohibitive now,” says Jeff Buckingham, president of Call America, a telecom company targeting small and medium businesses.
Call America, based in San Luis Obispo, Calif., will be raising a number of rates to cover the wholesale rate increases, says Buckingham, whose company pays a statewide average loop rate. California raised the average price of a local loop to $11.93, up from $9.82.
AT&T and MCI say the wholesale rate increases are likely to result in higher prices and fewer choices for Californians. MCI is looking into how the rate increases will impact its business.
About 10 percent of MCI’s 3.5 million customers subscribing to The Neighborhood - the phone company’s flagship consumer service - reside in California, says MCI spokeswoman Carolyn Tyler. Says Tyler: “Clearly the ruling jeopardizes our ability to continue (offering) all of our current services at their current prices and will likely affect their pricing and availability.”
One thing the ruling doesn’t do is totally end a contentious proceeding dating back several years. SBC is likely owed a substantial sum of money as compensation for the difference between interim rates set in 2002 and the adopted rates.
The California PUC says SBC must calculate whether the interim rates were higher or lower than the new rates and determine whether it has over- or undercollected the appropriate revenue.
Exactly how much competitors owe SBC is unknown, but SBC spokesman Britton says AT&T and MCI are responsible for about 75 percent of the retroactive payments. California regulators have frozen the effective date of the retroactive payments until the amount can be calculated, and there are further proceedings to determine payment options or consider other ways to mitigate the impact to competitors.
Britton says commissioners of the California PUC have expressed concern about the impact on smaller competitors.
“We’re already talking to some of them about payment arrangements and we want to be as sensitive as possible with wholesale customers and make arrangements they can meet,” he says.
Compton, of Telscape Communications, says the retroactive payments could really hurt. “All our capital planning and saving that we’ve done to invest and create jobs in California has just been wiped out by the potential trueup,” he says. “We’re lucky; with 90,000 customers we’re a good strong company and we’ll make it.”
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