MIDWESTERN WINS SPARK NEW SBC REGULATORY MOMENTUM

Ohio regulators' decision to increase wholesale rates paid by competitive carriers for unbundled network elements is just the latest evidence that SBC Communications has largely turned the tide with legislators and regulators in its once-troublesome Midwest states.

In Ohio, the public utility commission voted 3-2 earlier this month to approve a 15% interim increase in UNE rates, raising the monthly cost to lease wholesale lines in the state to $17.18 — the highest rate in the former Ameritech region, according to AT&T spokesman Mike Pruyn.

“What really galled us is that [the Ohio commission] did this without a hearing…talk about a ramrodding,” Pruyn said. “The skids were greased, so to speak.”

At the same meeting, Ohio commissioners said they plan to complete by November their UNE rate proceeding in which SBC is asking that wholesale customers pay $29.81 per line.

Ohio's UNE rate hike is the second such win in the Midwest this year, following Indiana's decision to increase wholesale costs by 30%. In both cases, AT&T stopped offering basic local service options to new customers, noting that the new wholesale rates are greater than SBC's retail rates — an argument SBC claims is hollow.

“It's interesting that they pulled out of Indiana [where AT&T claims its monthly UNE costs are $16.63 per line], then a week or two later they entered West Virginia at $27 per line,” SBC spokesman Kevin Belgrade said. “That borders on nonsensical; the numbers just don't add up.”

Although encouraged by the Ohio and Indiana decisions, SBC argues that wholesale pricing still doesn't cover its costs to provide and maintain the network, Belgrade said. The availability of UNEs based on TELRIC pricing means there is little reason for CLECs to build their own facilities, resulting in lost jobs for equipment manufacturers that have hurt the broader economy, he said.

“If you're buying components at 50% below costs, there's no incentive to invest in your own facilities,” Belgrade said. “Not only do they use our network at below costs, they use our technicians.”

More UNE rate increases may be in SBC's future. In addition to the Ohio proceeding, regulators are considering new wholesale rates in Michigan, Illinois and Wisconsin. Illinois' wholesale rates will be revised by June. Wisconsin just approved UNE rates last summer, but that was part of a four-year study based on “outdated” data, so SBC filed for a new rate proceeding on March 12, Belgrade said.

In most of these cases, the UNE proceedings follow SBC making inroads with the legislature. Illinois lawmakers last year passed a law that would have resulted in a significant UNE rate increase in that state, but a court ruling negated the effort. In Wisconsin, SBC successfully lobbied for a law that prohibits the state commission from taking more than year to decide a UNE case.

At least one analyst points to the RBOC's decision to hire former U.S. Secretary of Commerce William Daley — brother of Chicago Mayor Richard Daley — as a significant reason for the turnaround in the Midwest.

“I would give some of the credit to Mr. Daley, since he's from that part of the United States and gives [SBC's] arguments some strength out there,” said Patrick Comack, telecom analyst for Guzman & Co.

After acquiring Ameritech, Texas-based SBC met significant resistance from state regulators in the region who were upset by consistently poor service. The result was some of the lowest UNE rates in the country and little evidence of progress in Section 271 proceedings that would allow the RBOC to enter the long-distance markets in the territory. Since Daley's hiring, SBC has entered the long-distance market in all five Midwest states, has made considerable inroads with the state legislatures and has gained the aforementioned UNE increases, Comack said.

“[Daley was] a political hire — he didn't know anything about telecom before,” Comack said. “Intuitively it looks like he's earning his money.”

But Belgrade said the bigger issue is that more state officials are realizing SBC's positions on various telecom issues will promote investment and job growth to the economy.

“It's about policy, not personality,” he said. “When you talk about the market and the jobs lost, that's pretty compelling.”