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PUC Approves Plan to Abolish Many Phone-Rate Price Caps
By James S. Granelli, Staff Writer
Los Angeles Times
Thursday, August 24, 2006

Ending decades of government price regulation, the Public Utilities Commission on Thursday approved a plan that allows California's major phone carriers to raise residential rates at will.

The unanimous decision to abolish most price caps came after the commission concluded that competition from cable carriers and wireless providers has grown strong enough to check rate hikes by traditional landline phone companies such as AT&T Inc.

Just to be sure, though, the PUC reserved the power to step in and curb excessive price hikes.  It also froze rates for some poor and rural customers, who have less access to new technologies.

How the new rules, which take effect immediately, will affect monthly bills is uncertain.  The PUC regulates only basic local service as well as rates for toll calls within the state.  Most customers, though, pick and choose from a panoply of other features and calling plans to customize service -- and price.

AT&T, the state's dominant phone carrier, said the average monthly bill in California is $37.71, down 28 percent from five years ago.

Allowing market forces to replace regulation achieves a key goal of the last major revision of federal telecommunications rules.  Congress in 1996 allowed cable and phone companies to use their networks to compete head-on for the same customers.  That's why cable carriers now sell phone and Internet service alongside ESPN and HBO.

Regulators in 28 other states -- including Texas, Missouri, Indiana and Kansas -- already have abolished or rolled back rate caps in the past year.  It's still too early to determine the effect on rates in those states.

"These are new rules for a new era," said Timothy J. McCallion, Western region president for Verizon Communications Inc., California's second-largest carrier.  "The biggest winners, by far, will be consumers, who will see more choices for communications and entertainment."

AT&T senior vice president Cynthia Marshall said Thursday's change will give big carriers the flexibility to "react more quickly" to competition.

Consumer advocates were skeptical, noting that telephone companies always could lower prices in the face of competition.

"I'm not saying this is a nuclear winter, but the temperature feels a lot lower now," said Natalie Billingsley, chief telecom analyst for the PUC's consumer protection arm, the Division of Ratepayer Advocates.

Regina Costa of The Utility Reform Network in San Francisco said the PUC failed to gather solid evidence to support its proposition that competition is strong enough to keep prices in check.  Instead, it relied on federal surveys she said tend to overstate the amount of competition in a community.

Another wrinkle in assessing competition:  The two biggest wireless phone companies, Verizon Wireless and Cingular Wireless, are owned by Verizon and AT&T, respectively.  Together, Verizon and Cingular control half the wireless market.

"This is a commission that isn't interested in doing its job," Costa said.  "They have basically told the world that they aren't going to do what state law requires them to do:  To make sure rates are just and reasonable and to foster competition."

The cable industry generally supported the PUC's move to base phone prices on the open market, said Lesla Lehtonen, a vice president at the California Cable & Telecommunications Assn. trade group.

Neither AT&T nor Verizon plan to change prices soon.  Since 1994, regulated rates for basic local residential service in metropolitan areas has been $17.25 a month for Verizon customers and $10.69 a month for customers of AT&T, formerly known as SBC Communications Inc.

But with toll calls, fees, surcharges and taxes added, the typical bill for an AT&T customer in Los Angeles rose 31 percent to $17.56 since 1993.  Over the same period, the price for Verizon service in Long Beach rose 46 percent to $25.38, according to Federal Communications Commission figures.

A majority of customers, though, order both local and long-distance service from the same company, a bundle that can allow for discounts while raising the overall cost.

Nationally, average local phone rates have risen 20 percent to $36 over the past decade while the overall cost of living has climbed about 28 percent.  Over the same period, long-distance rates have plunged to $8 a month from $21, according to the FCC.

Add cell-phone service to the mix, and Americans spent $97 a month on telecommunications last year -- a 90 percent hike over their average bill 10 years earlier.

Thursday's changes, spearheaded by Commissioner Rachelle Chong, were the first major revisions to California's rate structure in 18 years.  California has regulated telephone service since 1912.

Chong said Californians enjoy "a fiercely competitive market" with "hundreds of phone companies competing for your business."

Commissioner Geoffrey F. Brown harbored "substantial reservations," but voted for the new framework because the old one is "unsustainable."

http://www.latimes.com/business/la-fi-puc25aug25,0,3702050.story?coll=la-home-headlines