Raleigh News & Observer

John Murawski

09/1/2006

If the state OKs its request, BellSouth could change plans, raise rates without oversight

BellSouth, the state's largest phone company, on Thursday asked the N.C. Utilities Commission for the right to change its prices and calling plans without government oversight or public hearings.

The Public Staff, the arm of the state utilities commission that represents consumers, will fight BellSouth's request, saying that such a move is almost certain to drive up costs and reduce service quality.

BellSouth's is the first such request by a local phone company in North Carolina, and, if granted by the utilities commission, it would dramatically alter the phone company's tightly controlled relationship with customers in Raleigh, Charlotte and other service areas.

Atlanta-based BellSouth, which serves nine Southeastern states, has in the past several years won similar concessions in Alabama, Kentucky and Mississippi, spokesman Clifton Metcalf said.

"It would give us the opportunity to do the same thing our competitors can do -- that is, make decisions with certainty and flexibility," Metcalf said.

BellSouth officials contend that regulation is no longer needed because the company's 1.9 million customers in the state have plenty of choices for phone service: from cable companies, wireless providers, Internet phone services or other land-line competitors that move into BellSouth's service area. The competitors don't need approval from the state to raise phone prices or change calling plans.

BellSouth says in the request it submitted Thursday that the intensity of the competition in telecommunications has rendered obsolete the regulated monopoly designed for the era of the rotary-dial phone.

BellSouth says it has lost more than half a million land-line customers in the state over five years because it's at an increasingly competitive disadvantage against the likes of Alltel, Vonage and Time Warner.

Unlike its competitors, BellSouth has to submit quarterly reports on problems with hookups, service and response times for repairs, and also get approval for rate changes. It also has to meet service quality standards and respond to consumer complaints.

Some competitors, such as Time Warner's digital phone service, are regulated for service quality, but not for pricing.

BellSouth is asking that all price and service quality controls be lifted, arguing that competition will assure that customers receive competitive pricing and reliable service.

BellSouth and other local phone companies have long complained that basic home phone service is underpriced and subsidized by data communications services that generate high revenue.

Critics contend that if phone companies could set prices as they pleased, local phone service would increase, and broadband and other services would go down in price to attract premium customers.

The Public Staff's executive director, Robert Gruber, is skeptical that BellSouth's changes would benefit all consumers.

"The lack of viable competitive alternatives to basic local service will enable BellSouth to increase the rates for those customers by forcing them into higher-priced bundled offerings or off the network completely," Gruber said in a four-page rebuttal to BellSouth's proposal. "This is not in the public interest."

One advantage of imposing a quality of service standard on local phone companies, Gruber said, is that it creates a minimum standard throughout the state that all competitors must meet if they want to keep customers.

Eliminating the standard would pull the bottom out on service quality, Gruber warned.

He also rejected BellSouth's arguments about the healthy state of telecommunications competition, contending that wireless service can be spotty, and Internet phones require pricey broadband connections.

"Since BellSouth would no longer have carrier-of-last-resort obligations, if it did not wish to serve an existing customer, it could no longer be required to do so," Gruber wrote. "Thus, approximately one-half of North Carolina's citizens will become subject to the whims of BellSouth's management."

BellSouth already has some latitude in pricing. The company can raise residential phone rates on basic service by 10 percent, plus the inflation rate.

And on most data and communications services for businesses, BellSouth has far fewer restrictions on pricing. Many pricing restrictions were relaxed last year for BellSouth, Verizon and Embarq, formerly known as Sprint.

Verizon spokesman Bob Elek said Verizon is not currently planning to ask for deregulation in North Carolina, but that the move is overdue.

Verizon, which serves Durham and has 346,000 customers in North Carolina, this month won a deregulation ruling in California. The California ruling was also granted to AT&T, the telecom giant that is buying BellSouth in a deal that is expected to close this year. Because AT&T and BellSouth are not yet merged, they are still operating as separate legal entities.

BellSouth is asking the state utilities commission for a speedy review of its deregulation request, with a public hearing as early as next month and a final decision no later than Jan. 15.

Staff writer John Murawski can be reached at 829-8932 or murawski@newsobserver.com.