Puc Opens The Way To Local-phone Rivalry Bell Atlantic Is To Be Split Into Wholesale And Retail Units. More Services And Better Access Are Expected.

Posted: August 27, 1999

HARRISBURG — After three years of debate, the Pennsylvania Public Utility Commission approved dramatic and sweeping rules yesterday to promote competition in the state's $3.7 billion local-phone market.

The commission's rules would give consumers and businesses new choices when they select a company to provide local-phone service and more access to advanced telecommunications services.

Though the rules were approved by the commission yesterday, the full details will not be ready for about a month, PUC officials said. And the commission could not be specific about when consumers would see lower rates, more competition or new services.

The rules, approved by a 4-1 vote, with Robert K. Bloom dissenting, include the breakup of Bell Atlantic Pennsylvania into two businesses. One would sell the use of Bell Atlantic's networks and services wholesale to companies that would resell the services to consumers. The other would be the company's retail division, which would sell services directly to consumers and businesses.

The rules should also pave the way for Bell Atlantic to gain approval to sell long-distance services in Pennsylvania.

Still, the decision was a blow to Bell Atlantic, typically a powerful player in the state capital. The company quickly said it would appeal the ruling. "I am frankly very confounded by the decision," Bell Atlantic Pennsylvania president Daniel Whelan said. "We will assess all our options."

It was unclear yesterday whether an appeal by Bell Atlantic would slow down implementation of the PUC's ruling. The commission said it believed it stood on firm legal ground.

With its decision, the PUC becomes the first state utility commission to call for the division of a regional Bell operating company. It also is the first ruling to deal with so many - 19 in all - of the complex issues that have been holding up local-phone competition across the country.

"Local-phone competition has been an unfulfilled promise for too long," said John Quain, commission chairman. "Customers want to select their local phone company. Customers want access to innovative services at affordable prices. Rural customers want equality. Our efforts have been frustrated for three years. Today is the day we make good on that promise."

"It took us three years to get here," said commissioner David Rolka. "Step-by-step changes weren't getting us where we needed to be."

Consumer groups and Bell Atlantic's competitors, including AT&T and MCI WorldCom, largely applauded the ruling.

Irwin "Sonny" Popowsky, the state's utility consumer advocate, said the decision, over time, should be a boon for residential customers. "The commission took a number of important steps," he said. "I think the commission came up with a comprehensive order."

Covad Communications, a California company that specializes in high-speed Internet access, also applauded the decision. Covad attorney Susan Jin Davis said she believed her company was "going to get treated better now."

She said Covad has had difficulty getting adequate information about the phone lines its leases from Bell Atlantic. "The biggest challenge is to get Bell to comply with the order," Davis said. "We feel positive about [the commission's decision], but it's all about implementation."

The commission hopes that its decision will enable companies to offer consumers one-stop shopping for packages that include local, long-distance, cellular and Internet service.

The ruling capped Bell Atlantic's local basic monthly rates until 2003, a condition consumer groups and some state political leaders had promoted. In addition, all phone companies offering local service in rural areas must freeze basic monthly rates at $16 until 2003.

The commission's order also stated that rates for in-state long-distance and toll calls - such as those made from Philadelphia to Harrisburg - will be lowered. That will be accomplished by reducing the fees Bell Atlantic charges competitors to connect calls. That will allow competitors to pass along their savings to customers in the form of lower per-minute toll rates.

The decision also expanded Lifeline service to include disadvantaged families whose incomes are 50 percent above the poverty line. The commission said nearly one million more households in the state would qualify for the telephone subsidy for low-income customers.

To the chagrin of consumer advocates, the commission did not adopt automatic enrollment into the program.

The decision also included a three-year consumer education program on how to shop for a local-phone company and a $30 million universal-service fund to offset the costs of providing service in rural areas.

The ruling also cut by 16.5 percent the amount competitors pay Bell Atlantic to lease parts of it network. Companies lease Bell's equipment and combine it with their own to provide local-phone service.

Yesterday's decision will have the greatest affect on Bell Atlantic. But it also laid the groundwork for how other local telephone companies - including GTE, Sprint/United and a number of smaller, rural firms - will further open their systems to greater competition.

Quain said that the decision was hardest on Bell Atlantic because it has a dominant position in the state, which would only grow if Bell Atlantic completes its proposed merger with GTE.

The commission said its pending review of the merger will not be affected by yesterday's ruling. The review is expected to be concluded in the fall.

Bell Atlantic said the decision imposes on it a "crushing set" of new regulations. It also said that the ruling threatened its investment and employment in the state. In particular, the company objected to the decision to split it in two. "We don't see this as a reasonable result," Whelan said.

AT&T said yesterday that it would start selling residential local-phone service in Pennsylvania in Bell Atlantic's territory as long as there was no delay in implementing the PUC decision and establishing the operating systems that would allow it to connect with Bell Atlantic's network.

"We didn't get everything we wanted out of this agreement, but we got enough so that we can reaffirm our commitment to enter the local market in Pennsylvania next year," said James Ginty, the president of AT&T Pennsylvania. "[The commission's] decision today is the bold and aggressive decision that those of us seeking to break into the local market called for."

MCI WorldCom also said the decision made it likely that it would start selling residential local-phone service in the state next year as well.

The three state senators who had participated in the local competitions talks - Vincent Fumo (D., Phila.), Roger Madigan (R., Towanda) and Mary Jo White (R., Venango) - said they supported the commission's decision. They had pushed hardest for the commission to force Bell to structurally separate itself into two companies.

Key Issues in the Commission Ruling

Prevents increases in Bell Atlantic's residential local telephone rates until Jan. 1, 2003.

Lowers in-state long-distance and toll rates for residential and business customers.

Forces Bell Atlantic to split its Pennsylvania company into two divisions: one to sell its services wholesale and one to sell its services to retail customers.

Increases by approximately 927,000 the number of Pennsylvania households that are eligible for subsidized local telephone service.

Cuts by 16.5 percent the prices that local phone competitors will pay to Bell Atlantic to lease parts of its networks. By lowering those costs, it becomes less expensive for competitors to offer local phone service and compete against Bell Atlantic.

Creates an estimated $30 million universal service fund to subsidize local phone service in higher-priced, mostly rural areas.

Establishes a three-year consumer education program to provide information on why and how to shop for a local telephone service provider.

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