Armstrong: AT&T will ‘greatly expand’ local offering pending states’ actions

AT&T Chairman and CEO C. Michael Armstrong told members of the American Enterprise Institute today in Washington that the interexchange carrier would be able to offer competitive local residential service to more than half the Bell companies’ territories by the end 2002 provided state regulators “continue to pursue pro-competitive policies.”

Specifically, Armstrong was speaking about lowering the rates incumbent carriers can charge competitors for unbundled network elements (UNEs).

He said that industry investment is higher in states “with the most UNE competition,” and that facilities investment is made possible by the leasing of unbundled elements because it allows competitive carriers to gain scale in customers and revenue. “The recent Supreme Court decision on the Telecom Act said as much,” Armstrong said.

That decision affirmed the FCC's total element long-range incremental cost (TELRIC) formula for determining the rates at which incumbent telephone companies must make their facilities available to competitors under the act. In the 7-1 decision, the Court rejected the claim of incumbent carriers that the TELRIC formula should consider the historical costs associated with providing a specific network element.

Armstrong criticized the Bell companies for their oft-stated position that industry deregulation is a prerequisite to data network investment.

“[The Bells] are already serving more than 2 million DSL lines and are adding thousands more everyday,” Armstrong said. He estimated that the Bell companies have invested about $5 billion in broadband DSL over the past two years.

Ed Young, senior vice president of federal government relations for Verizon Communications, described Armstrong’s notion of competition “backward.”

“The Act intended, as the D.C. circuit recently pointed out, the creation of facilities-based competition, not synthetic competition,” Young said. He accused AT&T of slowing its investment in local facilities in New York after receiving a favorable ruling in January 2002 from the state’s public service commission that lowered UNE rates by about 30%.

“Where UNEs are heavily used, investment in facilities is retarded and there is more reliance on incumbent networks,” Young said.

Nevertheless, Armstrong said AT&T expects UNE rate adjustments in the next few months in New Jersey, Virginia, Arizona and Pennsylvania, similar to those granted in New York and California – which recently cut rates by about 40%. Should that relief be granted, Armstrong said AT&T would act accordingly.

“If the states choose competition over monopoly, AT&T local service will be available to more than 50% of Bell consumers by the end of this year,” he said.

An AT&T spokeswoman said AT&T “balked just like the RBOCs” when it came to opening the long-distance market to competition after the 1984 breakup of the carrier but said AT&T eventually “came around and did what we needed to do” according to the statute.

“Our feet were held to the fire, but now there’s a tremendous amount of competition in long distance,” she said. “That hasn’t happened in the local market, but that’s starting to turn around based on the states doing the right thing with UNE pricing.”