Bells Hang Up on AT&T Proposal

AT&T Corp. has proposed moving off a leasing platform the biggest local phone companies despise, but that has not made peace in the industry.

Some regional Bells have blasted AT&T’s proposal to provide consumers local phone service over its own switches in exchange for lower wholesale rates on access to the last mile: the wires connecting central offices to homes. AT&T made its offer with six weeks remaining until FCC wholesale phone regulations were set to expire.

The proposal calls for a spike in the price of the controversial UNE-P by at least $3 per line over the next 2 1/2 years in exchange for access to the last mile of wires to homes “on terms that are reasonable and fair.” AT&T, which provides consumers local phone service in 46 states, also has proposed the Bells meet other conditions, such as removing obstacles to using loops and having state commissioners or third parties certify that a list of requirements have been met.

AT&T owns switches, but it also may lease switches in some areas of the country. BellSouth Corp., which is in private negotiations with dozens of carriers to lease its network, was quick to reject the proposal. “Once again, AT&T is trying to perpetuate government controls of a marketplace that has become intensely competitive and should be controlled by the consumer,” BellSouth said in a statement.

Qwest Communications International Inc. also rejected the proposal. “AT&T’s proposal would set rates further below cost for services it wants, while it would increase rates for services in which it is no longer interested. That won’t work for a host of other CLECs that are seriously interested in negotiated solutions to better serve customers, nor does it work for Qwest,” says Steve Davis, senior vice president of public policy with Qwest. “AT&T’s proposal shows exactly why negotiations with other carriers are moving forward, while they continue to sit on the sidelines.” SBC Communications Inc. gave a mixed reaction to the AT&T proposal.

“We are encouraged that AT&T is following our lead to negotiate wholesale rates, as directed by the FCC. We are reviewing the information with the hope that AT&T has made a serious proposal,” the No. 2 local phone company says. “However we have initial concerns about AT&T’s sincerity, since it appears they are proposing more setbacks than improvements.”

Says Verizon Communications Inc. spokesman Larry Plumb: “Regarding AT&T’s proposal, the place to consider and propose it is in the context of one-on-one, commercial contract negotiations with us.”

DEADLINE LOOMS

Local phone companies are scrambling to enter leasing agreements with the Bells after a federal appeals court rejected FCC rules March 2.

The regulations preserved government-mandated wholesale phone rates and designated rulemaking authority to state public utility commissions. The rules are set to expire June 15, but the federal government may ask the U.S. Supreme Court to review the contested regulations.

The regional Bells have announced a few deals since March 31, the day all five FCC commissioners called on the industry to negotiate commercial agreements. For example, on April 29 - the same day AT&T unveiled its proposal - BellSouth disclosed reaching commercial agreements with Dialogica Communications, International Telnet Inc. and CI2.

In early May, a group of facilities-based CLECs announced a proposal designed to secure access to the Bell networks in order to reach small and medium-sized businesses. Under the proposal, the telecommunications providers would agree to pay BellSouth, Qwest, SBC and Verizon negotiated rates for high-capacity dedicated transmission facilities. Allegiance Telecom, KMC Telecom, NewSouth Communications, NuVox Communications and XO Communications Inc. submitted the proposal. The CLECs say the Bells are threatening to charge significantly higher rates than they do today to lease parts of the local network based on tariff rates.

Independent analyst Jeff Kagan says if a Bell can reach an agreement with one of its big rivals - AT&T, MCI or Sprint Corp. - that could help facilitate other large deals. “Once we crack the deadlock, then I think we can use that as a model or a framework to hammer out other ones,” he says.

Kagan says the AT&T proposal could spark creative ways of putting together agreements. “What AT&T is trying to do is trying to take another path, another way of structuring a deal,” Kagan says. “There are 100 ways to skin a cat. This is the second way. AT&T is just trying to be creative.”

Ultimately, the Bells will view the wholesale market as increasingly important, just like AT&T did in the 1980s after losing market share to long-distance resellers, says Kagan. “In the beginning AT&T didn’t want anything to do with them [long-distance resellers] and they made it difficult. One day they woke up and realized their market share was slipping and they needed the wholesale business,” he says. “I think the same realization is going to happen to the Bells. I just think they are going to wait as long as they can because it’s more profitable on the retail side.”