AT&T threatens to pull local service in NY, Texas

(Telephony) AT&T Chairman Michael Armstrong said Wednesday in Washington that the company may be forced to pull its local phone service from New York and Texas because it cannot turn a profit.

The announcement was made just one day before the five-year anniversary of the 1996 Telecommunications Act, which was expected to break the RBOCs’ local-market stranglehold and energize competition.

“If nothing changes, we will be forced to shut down our local-service business in New York and Texas,” Armstrong said. “We lose money on every customer we win.”

A spokeswoman at AT&T said that there is no timetable as to when--or if--the company would discontinue service in the local markets that Armstrong mentioned.

AT&T says it currently pays Verizon a monthly fee of $22 per residential customer in New York and charges its customers $24.90, clearing only $2.90 per month per customer. In Texas, SBC charges AT&T $19.45 per month in urban areas, $21.53 in suburban areas and $28.19 in rural regions.

President of AT&T Pennsylvania James Ginty said abandoning the local markets in New York and Texas may be necessary.

“We’ve gained more customers from Verizon than we’ve lost to them, and that’s good news,” Ginty said. “The bad news is we’re losing money, and you can’t sustain that unless things change.”

Critics say that, after five years, the Telecommunications Act has not achieved the changes for which it was designed. Although the number of competitive local providers has more than doubled in since 1996, most believe RBOCs still control the local markets.

According to FCC statistics, 97% of residences and small businesses are served by RBOCs, leaving only 3% to competitors. In addition, the consumer price index shows that while cell phone and long-distance prices have decreased steadily since 1996, local phone service is increasing.

On balance, Verizon issued a statement yesterday praising the landmark 1996 act and its ability to spur competition in local phone markets, particularly in New York.

“There is no denying that the door to local phone competition is wide open,” said Tom Tauke, senior vice president for public policy and external affairs at Verizon. “Consumers in New York state, where local and long-distance competition have taken hold, are benefiting to the tune of $220 million per year in lower phone bills.”

But AT&T said the savings New Yorkers realize would be jeopardized if the company exits the state’s local market, taking with it Verizon’s competitive incentive.

“You’ll wind up with states where the Bell operating companies are the only game in town,” a spokeswoman with AT&T said. “There won’t be any competition ,and I would suspect that pricing will not be as good in those states.”

Armstrong said that the problem may not be the Telecommunications Act but an inability of state regulators and the FCC to enforce it. He called on Congress to force RBOCs to open their local markets and foster competition.

“The record of the past five years shows a steady march toward the re-monopolization of the industry,” Armstrong said. “Now it’s up to the state and federal regulators to provide the will.”

The AT&T chief also cited incidents of RBOCs using anti-competitive tactics against would-be challenges, including mishandled orders and inflated line-leasing costs.

In November, BellSouth paid $750,000 to settle Federal Communications Commission charges that it was unfair to competitors. Last March, Verizon settled charges that it lost or mishandled phone service orders for competitors.

“The Bells are willing to pay fines rather than give up their local-market monopoly or follow the rules,” said Doug Hanson, chairman of CompTel.