The state Public Service Commission yesterday dealt a blow to AT&T Corp.'s plans to enter the local telephone service business in Maryland by ordering an interim arrangement between Bell Atlantic Corp. and AT&T that both sides say they don't like.
The commission set a relatively high temporary price for Bell Atlantic's bulk sale of local phone service to AT&T, which wants to enter the local phone business initially by reselling Bell Atlantic's dial tone to its own newly signed customers.
The federal telecommunications law passed Feb. 1 permits new companies to enter the local phone business by reselling service sold to them at wholesale by established local phone companies such as Bell Atlantic.
As new competitors become more established, many are expected to build their own networks so they can compete with traditional Bell companies across-the-board.
The commission said AT&T will get only a 10 percent short-term discount off Bell Atlantic's retail rates, far below the 41.3 percent discount AT&T sought.
The interim rate will eventually be replaced by rates negotiated between the former corporate siblings, with the commission arbitrating disputes if talks break down.
"A commission that otherwise has been so progressive in a lot of ways failed to see the need for a more aggressive discount," said William Stake, an AT&T vice president, who said other states have ordered interim wholesale prices that are up to 25 percent below retail.
"Our dance card starts to get full of places that are more attractive to enter sooner," said Stake.
But Stake said the PSC's decision would not keep AT&T out of the local telephone business in Maryland for long. He said a bigger discount would have let the company enter Maryland up to six months sooner than it expects to be able to after negotiations with Bell Atlantic, but he said AT&T will offer local service here eventually.
Bell Atlantic, which looked like the winner as AT&T's bid for huge discounts was rejected, said the commission still did too much.
"We don't believe an interim wholesale rate should have been set," said John Dillon, Bell Atlantic-Maryland's vice president for external affairs. "It creates a floor [for the permanent price]. It changes the negotiations."
Dillon said true competition will be hampered if wholesale discounts are too big, because resellers will have no need to build their own call-handling networks if reselling is too profitable. He said the company has reached one deal, with a cable television company that wants to offer limited phone service in Virginia, that calls for wholesale prices 6 percent to 9 percent below retail rates.
If newcomers don't build their own networks, he said, competition will be confined to services like marketing and billing that make up less than half of the cost of providing local phone service.
In an eight-page order, the commission said AT&T had not made the case for the size of discount it wanted.
The commission said federal law calls for the discount to be based on Bell Atlantic's retail prices, minus costs for functions like marketing and collection expenses that the new competitors will handle on their own, but the commission didn't accept AT&T's calculation of Bell Atlantic's costs.
"The commission does not find in [the hearing record] a sufficient basis to make any determination as to the validity of AT&T's analysis," the PSC opinion said. "It is also unclear at this stage whether AT&T has used entirely correct standards in calculating its proposed rate reduction."
The commission did not offer any basis for choosing a 10 percent temporary discount, however. "The commission's decision does not endorse the financial analysis of any party to this proceeding, but is based upon its desire to advance competition until permanent wholesale rates are developed through agreement of the parties or otherwise," it said.
Both sides said they are far apart over the permanent wholesale rates. Their dispute can be referred to the commission for arbitration after July 15, Stake said.
Pub Date: 6/28/96