After a spate of bankruptcies and mass layoffs, the
telecommunications sector is beginning to show signs of life. One
reason is that last year the California’s Public Utility Commission
lowered the wholesale prices that SBC Pacific Bell charges other
carriers to access California’s network, giving competitors access
to local customers for the first time.
After a spate of bankruptcies and mass layoffs, the telecommunications sector is beginning to show signs of life.
One reason is that last year the California’s Public Utility Commission lowered the wholesale prices that SBC Pacific Bell charges other carriers to access California’s network, giving competitors access to local customers for the first time. Millions of California customers have benefited from the lower prices and greater choice that have followed, and hundreds of thousands chose to go with a different carrier for local service.
Of course, if you live in Morgan Hill or Gilroy, an area served by Verizon, this is all news to you. The problem for Morgan Hill and Gilroy residents is that the CPUC did not cut the wholesale prices charged by Verizon, California’s other dominant local phone company. Thus we have the incongruous situation where consumers and businesses on one side of a particular street (in SBC territory) have greater choice and lower prices than those on the side served by Verizon.
The commission should right this arbitrary discrepancy by extending to Verizon customers in the South Valley the same benefits of price competition that customers in Pac Bell territory (such as San Martin and San Jose) currently enjoy. Reducing these wholesale rates is a rare case where even laissez faire free marketers can see that fair-minded regulation can do some economic good. Utility commissions set prices for different elements of telecommunications services controlled by the Baby Bells. Competitive carriers buy these components (called
“Unbundled Network Elements”) and re-sell them to consumers or businesses as retail products. The 1996 Telecommunications Act requires the local phone monopolies to sell those “unbundled elements” at fair and reasonable prices.
The problem is that for many years that prices were artificially high, making it virtually impossible for another phone company to offer local service at competitive prices. Last May the CPUC and other state regulators took a huge step in the right direction by reducing the UNE wholesale rates charged by SBC Pacific Bell to $9.93 per phone line. The results have been encouraging. In California, competitive local carriers now serve between 19 and 25 percent of the business market and SBC is actively taking orders from 87 other phone companies. Last year, SBC lowered phones rates after AT&T entered the California local market and dropped its own prices 20 percent.
The Baby Bells have predictably complained that it’s unfair to allow competitors to use “their” network. What the Bells omit is that for nearly a century they enjoyed a government- and ratepayer-subsidized monopoly that created the vast phone network and the “local loops” that connect to each house and office. These networks are prohibitively expensive to replicate – the equivalent of forcing a rival trucking company to build its own set of highways.
Verizon and SBC are aggressively lobbying state and federal regulators to either double the wholesale UNE rates, or prevent competitors from accessing the local phone network altogether, in effect precluding any competitive carrier from any potential profit margin or market share.
The CPUC should continue to set prices that balance allow for healthy competition to take hold. California consumers should remember that every competitive carrier that goes out of business adds to market power of incumbent corporations like Verizon and SBC Pacific Bell, meaning less choice and higher prices. Most of the weak and marginal telecommunications companies are gone. What this past year’s results have shown is that moderating wholesale costs can allow the remaining competing carriers to grow and thrive.
The CPUC should give Verizon customers in Morgan Hill and Gilroy the same choices and prices that SBC customers have gained over the last year.
Mike Jackman is director of the California Internet Service Providers Association. Readers interested in writing a guest column should contact editor Walt Glines at [email protected] or 779-4106.
