Hold the phone
Local phone companies were eager to provide long-distance service once that business was opened up to competition. The result has been more choices and lower rates for consumers. But those same companies -- including Verizon, which serves the Tampa Bay area -- have fought to keep rivals out of their local phone business. Consequently, most customers have little or no choice for local service and have seen no savings on their monthly phone bill.
Instead of pressing Verizon and the other established local phone companies to play by the rules, Federal Communications Commission Chairman Michael Powell wants to let them ease back into their monopolistic ways. As the FCC rewrites its regulations for local phone companies, Powell is considering two changes that would actually stifle competition and cost consumers billions of dollars.
In telephone parlance, a "loop" is the line connecting a home or business to a phone company office and a "switch" is the computer that routes calls over those lines. Currently, local phone companies are required to rent some of their loops and switches to competitors at reasonable wholesale rates. It is the only practical way to promote competition. Yet Powell has said that rivals to the established companies should have to build their own local switches in some markets, a costly barrier that would keep competitors out.
"There are 20,000 central (switching) offices throughout the country," said H. Russell Frisby Jr., president of CompTel, a coalition of companies that want to compete for local phone business. "No one can duplicate the Bell network."
Powell has also talked about denying states the authority to set wholesale rates charged competitors for the loops and switches. Without such oversight, the established companies inflate the price. In Florida, the Public Service Commission sets those rates, and it is more likely to promote competition than if the decision were made in Washington by the FCC.
Recent rulings by the PSC show that the two dominant local carriers in the state -- Verizon and BellSouth -- were overcharging their competitors. Verizon wanted to charge $22 a month to rent a loop in urban areas. The PSC determined that the fair rate was actually $12 a month. BellSouth's rate was reduced by $2.10 to $10.69.
Such efforts to promote competition are just starting to pay off in Florida. Competitors provided local phone service to 13 percent of all customers last year, up from 8 percent the prior year. The biggest gains were for business customers, with 26 percent using a competitor to the established phone companies. But there hasn't been enough choice to push local phone rates lower for residential customers. If competition for local phone business flourished in all 50 states, consumers would save more than $9-billion a year, or an average savings per phone line of $7.50 a month, according to CompTel.
Florida PSC officials have made a reasonable argument to the FCC to let states continue to make the decisions on wholesale rates. "Specifically, states are more familiar with conditions within their borders, including the level of competition and the system of retail price regulation that applies to the (established local phone company)," said PSC official Cynthia B. Miller in formal comments to the FCC.
Powell has a flawed view of how competition should work for local phone business. He believes that cable TV companies, who could use their networks to provide phone service, will offer enough competition to serve consumer needs. That's a risky assumption. The truth is, the best hope for lower phone rates now is to level the playing field for AT&T,
Z-Tel and others who are already taking on the established local phone companies.
Verizon and BellSouth are more than a little hypocritical in their efforts to fend off competitors. Both companies have eagerly jumped into the long-distance phone business. In fact, Verizon has become the third largest long-distance provider by renting other companies' equipment at reasonable prices. But Verizon and the others have kept their local-service competitors at bay by endlessly filing lawsuits and challenging rulings by regulatory bodies. Now, rivals are asking for the same opportunity to compete that Verizon and BellSouth have. "All we're saying is open up the local market like you did the long-distance market," said CompTel's Frisby.
That is the goal of the Telecommunications Act of 1996, and Powell has come under harsh criticism in the U.S. Senate for ignoring Congress' intention. Powell's proposed rule change "makes no sense," said Sen. Ernest Hollings, D-S.C. "This experiment is finally beginning to work for American consumers, by reducing, at long last, the price of local phone service and providing meaningful choice,"
Fortunately, the decision on local phone competition isn't up to Powell alone, but must be approved by three of the five FCC commissioners. The issue may be complex but the decision should be easy. The FCC should allow competitors reasonable access to the established companies' loops and switches, and they should allow states to retain the authority to set the rates for those transactions.
That is the only chance most Americans have of seeing competition for their local phone business.
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