Fears over SW Bell's hold on local market fuels opposition to plans

Monday, April 3rd 2000, 12:00 am

By: News On 6

Opposition appears to be mounting to Southwestern Bell Telephone Co.'s petition to sell long-distance service in Texas, currently under review at the Federal Communications Commission.

FCC officials, expected to decide by the end of next week, remain concerned that SBC's Southwestern Bell hasn't sufficiently loosened its monopoly on its local phone markets in Texas.

The agency's five commissioners and staff are still meeting frequently with SBC and its rivals, but staff members have recommended rejecting the application, according to a person familiar with their position.

According to a 1996 law, most major local phone companies, including San Antonio-based SBC, may not sell long-distance phone service until they have proved that rival companies can fairly compete against them, selling local phone service in the regions they dominate.

Everyone involved agrees: Competition has sprouted in some parts of Southwestern Bell's Texas territory.

AT&T Corp. and Sprint Corp., for instance, have expanded their residential local phone service offerings in the last few weeks. In December, the Public Utility Commission of Texas declared SBC's local phone markets open, ending two years of negotiations and testing.

SBC is already quietly marketing long-distance service for business customers through a Web page that lets potential subscribers sign up to be contacted after the company receives approval.

But the FCC is said to be troubled by repeated allegations from the U.S. Justice Department.

In a report the FCC is considering, the department contends that SBC's rivals don't have a fair shot at selling high-speed Internet access. It also says that as Bell's local service competitors sign up more small and midsize business customers, they could have greater difficulty switching their service without losing dial tone.

SBC shares fell 25 cents to $42.24 Wednesday on the New York Stock Exchange.

SBC vice president and assistant general counsel Paul Mancini wouldn't rule out a yes from the FCC.

"Hope always springs eternal," he said, noting that commission staff at one point opposed SBC's acquisition of Chicago-based Ameritech Corp., which the agency later approved.

"If you talk to the commissioners, they will all make the same point on this issue, and that is that the commissioners vote. ... The staff doesn't vote."

Facing a possible rejection, Mr. Mancini said, the company would consider a "wide range of options" - including withdrawing its application before the commission has a chance to say no, then reapplying later.

Others said that would be unlikely, because it would send the company back to the beginning of the process.

If commissioners do vote against the application, Mr. Mancini said, "My expectation would be, hypothetically, that they would identify a relatively small number of issues that we could address in as timely a manner as possible."

Those issues would almost certainly include those raised by the Justice Department.

Rivals, including small Internet service providers in Texas, say SBC discriminates against them in selling high-speed digital subscriber line Web access. Other competitors, such as AT&T, point to Justice's allegations that the data SBC submits to regulators about its performance is unreliable.

How SBC treats competitors matters, because they usually use part of its network to offer local phone service. Regulators set up complex rules governing relationships between old and new phone companies, because they believed that wide-scale competition would never emerge if new companies had to build whole new phone networks - a prohibitively expensive proposition.

Of all the local phone companies that were once part of AT&T Corp., only Bell Atlantic has received permission to sell long-distance service, and it may only do so in New York.

When Bell Atlantic entered the long-distance market there, competing companies increased their efforts to sell local phone service - a reaction regulators were hoping for.

But as competition grew, Bell Atlantic failed to continue meeting requirements for working with competitors. In February the company agreed to pay $13 million in fines and refunds. (On Wednesday, Bell Atlantic said it would extend its long-distance offers to 33 states outside its local phone territory, including Texas.)

SBC's opponents say the problems in New York should lead the FCC to be cautious, delaying approval until the company resolves the issues that remain.

"The issues that are being raised are all things that are entirely in Southwestern Bell's control," said Edwin P. Rutan II, AT&T's southwest region law and state government affairs vice president.

But Judy Walsh, one of the Texas Public Utility Commission's three commissioners, said the experience in New York shouldn't torpedo SBC's chances of selling long-distance.

"I'm concerned about backsliding in Texas, if it were to happen," said Ms. Walsh, who was the least willing of the state regulators to OK SBC's petition. "We've got the penalties and dispute resolution to handle problems."

Ms. Walsh said the harm to the state's local phone markets could be greater if SBC doesn't get into the long-distance market. Worst case, the company could be less willing to negotiate with regulators and, after September, it could throw out a contract that governs how it works with competitors, causing market uncertainty and causing them to stop trying to compete.

"There's not a single problem that's been brought up that we don't have a procedure and policy to address in Texas," she said.

Finally, Ms. Walsh said, Texas regulators set up a tough approval process for deciding whether SBC has opened its markets, partly to create a blueprint for other parts of the country.

If the FCC rejects Southwestern Bell's petition, she said, it could slow competition in other states where SBC operates.

"If it's good enough in Texas, the other SBC states are going to go pretty quick. If this isn't good enough, everybody's back to square one."