Phone deal needs assist AT&T, Bell Atlantic ask state regulators to arbitrate price

'Part of the process'

Sales figure remains key unresolved issue in deal for local service

July 16, 1996|By Timothy J. Mullaney | Timothy J. Mullaney,SUN STAFF

Saying talks on the future of local telephone competition have left them far apart, AT&T Corp. and Bell Atlantic Corp. yesterday asked regulators in Maryland to arbitrate the price AT&T will pay Bell Atlantic for access to the local phone market.

The Basking Ridge, N.J.-based long-distance giant plans to enter the local phone business by buying service wholesale from Bell Atlantic and other regional Bell operating companies, then turning around and selling the same service to consumers. Over time, the company plans to build its own network.

Under the federal telecommunications law passed early this year, carriers seeking to enter the local phone business now virtually monopolized by the Baby Bells can ask state regulators to intervene if talks over wholesale prices and other details don't yield an agreement within the first 135 days.

Yesterday was the first day AT&T and Bell Atlantic could appeal to Maryland's Public Service Commission for arbitration. They also appealed yesterday to regulators in Virginia, Pennsylvania, New Jersey and Washington.

"This really is part of the process set out in the Telecommunications Act," said William A. Stake, AT&T's vice president president of local service for the mid-Atlantic states.

"We've made significant progress and resolved a number of issues. It's those issues we don't agree on that we're seeking the commissions' help."

Bell Atlantic agreed that most issues have been resolved, but that central issues are still unresolved.

The biggest issue is the price new local phone companies will pay Bell Atlantic for the wholesale service. In a bid to set an interim rate to be effective until the negotiations end, AT&T asked Maryland regulators for a wholesale price 41 percent below the rate Bell Atlantic charges its customers.

Both sides mad

Instead, the commission gave AT&T a short-term 10 percent discount. Both sides were mad, AT&T because the discount was so small and Bell Atlantic because it said giving any short-term discount upset the balance of power in negotiations over permanent rates. Regulators in other states have demanded temporary wholesale rates up to 25 percent lower than retail prices.

By contrast, Bell Atlantic reached a deal with a cable television company to sell access to its Virginia network for rates 6 percent to 9 percent below retail.

The federal law requires that the wholesale rates be based on "retail rates excluding the portion thereof attributable to any marketing, billing, collection and other costs that will be avoided by [Bell Atlantic]."

The idea is that by allowing more players into the market, competition will force innovation and cut rates over time. The new players will use existing carriers' networks in order to build a customer base to pay for building separate networks of their own, but both AT&T and MCI Communications Corp. said they expect to buy some services from Bell Atlantic indefinitely.

In the meantime, lobbyists for the Baby Bells and the new entrants disagree bitterly over which costs ought to be excluded from Bell Atlantic's retail rates before wholesale rates are set.

"AT&T wants us to give away subsidized local retail service," Bell Atlantic general counsel James R. Young said. "If AT&T had its way, AT&T would be in a position to resell the service to our customers for less than it costs us to provide it, and AT&T would still make money."

Stake contended that Bell Atlantic wants AT&T to pay for part of Bell Atlantic's advertising expenses and corporate overhead. "We fundamentally have a different interpretation of the [Telecommunications] Act," he said.

Steven Molnar, director of telecommunications for the Maryland PSC's staff, said it's not clear what will happen next. The staff is still drafting procedures for how the commission will arbitrate the dispute. The federal law does not specify how the commission will arbitrate disputes between Baby Bells and new carriers, Molnar said.

Maryland's commission is required to act by Dec. 1 under deadlines set out in the federal law.

The dispute is not likely to be the last of its kind. MCI Communications Corp. is also involved in stalled negotiations with Bell Atlantic, said Jay A. Young, regional director of public policy for MCI. That dispute can't be referred for arbitration until Aug. 9.

Young said MCI has sought interim wholesale rates between 30 percent and 50 percent lower than retail prices, a pattern he said was based on practices in the long-distance industry after it was opened to competition in the 1980s.

Pub Date: 7/16/96

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