Since the Bush administration failed to challenge a court ruling that will stifle competition for local phone service, rates are likely to go up.
Published June 11, 2004
Local phone service is going to get more expensive and less competitive, and the Bush administration is afraid it will be blamed. If it is, the blame will be well placed.
Under the direction of the White House, the solicitor general decided this week to reverse course by dropping a challenge to a court ruling that will discourage phone competition. With less competition, the cost of local service, especially for residential customers, is almost certain to rise.
"It's the final nail in the coffin for local telephone competition," said Gene Kimmelman, senior director of Consumers Union.
A central premise of the Telecommunications Act of 1996 was the opening of long-distance and local markets. As the former Baby Bells released their near-monopolistic hold on local lines and switches, the theory went, they would be allowed into the long-distance business. Half of that formula worked. With the regional phone companies and others vying to offer interstate calling, long-distance rates have plummeted. But every step of the way, the four remaining phone giants - including Verizon and BellSouth - have fought against honoring their part of the bargain, which was to make their local lines and switches available to rivals at reasonable rates.
Now, it looks as though they have won. It came about this way: Last year, a majority of the Federal Communications Commission defied its chairman, Michael Powell, and ruled that the regional phone companies would have to continue offering access to their networks at regulated rates that encouraged competition. Consumers are just starting to see the fruits of that effort. In Florida, about one in 10 phone customers now gets local service from a company other than the established providers.
The regional companies sued, however, and an appellate court overturned the FCC decision, meaning Verizon, BellSouth and the others would be able to set higher wholesale rates for access to their local lines. (Meanwhile, Verizon and BellSouth are trying to win an unprecedented retail rate hike in Florida, so that state residents would lose both ways.) The Bush administration could have challenged the appellate court ruling before the U.S. Supreme Court - and it should have if it valued a true marketplace for local phone service - but it declined. Without the administration's participation in the case, the FCC dropped out as well, meaning the Supreme Court is less likely to consider it.
If that stands, two of the Baby Bells' main rivals, MCI and AT&T, say they could be forced out of the local phone business. Already MCI is considering dropping its 3.5-million local customers and focusing on its corporate clients. Even if some customers are still offered a choice for local calling, the cost is almost certain to rise because of the competitor's increased cost of doing business.
The atmosphere in which the administration made its decision was particularly unseemly. Both the regional giants and their rivals plied President Bush and the Republican Party with campaign contributions. The rivals threatened to run political ads blaming the president for increasing telephone rates (they would have a point), and the Baby Bells countered by promising not to raise their fees until after the election.
The pawns in this game, of course, are consumers. Particularly vulnerable are low-income families and seniors on fixed incomes who could eventually be priced out of basic phone service.
Verizon and the other regional phone officials say their ability to charge competitors more for line access will result in more innovation. That may be so. But no one can say with a straight face that the cost of local phone service isn't headed higher, probably a lot higher.
