Lower fees fail to lure phone foes

A decision in late March by state regulators to slice the fees SBC Ameritech can charge companies to lease parts of its network has produced mixed reviews from some competitors exploring the local phone service market.

The Indiana Utility Regulatory Commission dropped the onetime cost a competitor

pays for each customer who switches local service from $102.05 to 37 cents. The change puts Indiana's migration fee in line with those charged in most nearby states where SBC operates. The charge is 74 cents in Ohio, 35 cents in Michigan and $1.02 in Illinois. Only Wisconsin, with a fee of $128.53, has a significantly higher rate.

Long-distance providers already operating in Indiana, such as AT&T Corp. and McLeodUSA Inc., welcome the commission's ruling but still are hesitant, for different reasons, to expand their offerings to include local service. Another long-distance competitor, MCI Group parent Worldcom Inc., began rolling out a campaign promoting its new local phone service packages two weeks after the commission's decision.

Meanwhile, SBC Ameritech is complying with the order to lower the rates but has appealed the ruling. No hearing dates have been set.

Both AT&T and McLeodUSA are embroiled in a separate petition asking the commission to split SBC Ameritech's operations into two separate companies, and AT&T is awaiting that ruling before deciding whether to offer local phone service.

"While the [migration] order is a good first step, we still intend to strongly pursue the structural separation of Ameritech," AT&T spokesman Mike Pruyn said. "That, above all, will jumpstart local phone competition in Indiana."

Carving the phone company into wholesale and retail entities, the competitors argue, will bolster their chances to compete for local customers.

Separating SBC Ameritech would force it to buy the use of its own network on the same terms as its competitors.

The commission heard structural separation arguments in midApril and more hearings are scheduled in June. Attempts to structurally separate the four Baby Bell companies are occurring across the nation, although none has been successful.

McLeodUSA hailed the commission's decision to slash migration costs as eliminating a significant barrier that has not existed in other states, said Bill Haas, deputy general counsel for McLeodUSA.

Still, it's doubtful the Cedar Rapids-based telecommunications company will provide local phone service in Indiana anytime soon. Without a large marketing budge t to advertise its services, McLeodUSA relies on telemarketers to shop its products. Indiana's stringent telemarketing bill that prohibits companies from selling services via telephone to residents on a voluntary no-call list has thwarted any plans it might have had to serve residential customers, Haas said.

"Indiana has a very onerous telemarketing statute, and that is still a huge barrier to us for actively marketing residential service," Haas said. "The statute in Indiana is going to be a real problem for us."

Furthermore. players in the cutthroat telecommunications industry have been hemorrhaging money and posting heavy revenue losses the past two years. McLeodUSA filed for Chapter 11 bankruptcy protection in January and emerged from the proceedings in mid-April.

"The problem remains that you can't make any money in residential service," said John Koppin, president of the Indiana Telecommunications Association. "Residential rates in Indiana are very reasonable. It's very difficult for a competitor to come in and make any money at it."

Most telecom companies target the more-profitable business customers. But, both AT&T and McLeodUSA said they offer residential phone service in other states where Ameritech operates. AT&T began offering residential service in Michigan in February and McLeodUSA offers similar services in Illinois and Wisconsin.

"Part of the problem is that we haven't convinced the [Indiana] Legislature to give the commission authority to enforce their orders," Haas said. "There's still work to be done in Indiana to get competition where it needs to be in that state."

Recent attempts in the Legislature to give the commission fining authority over utilities that fail to meet service quality standards have failed.

Despite the reluctance of AT&T and McLeod USA, MCI included Indiana among 32 targeted states in its initial launch April 15 of the company's residential phone service program.

"We are in the market today selling to residential customers in the Ameritech footprint, and the reason for that is the decisions we've received of late from the Indiana commission," said Joan Campion, MCI's regional director of public policy.

Besides challenging the lower migration costs, SBC Ameritech also wants to raise the monthly Unbundled Network Element Platform rates competitors pay per customer to lease parts of Ameritech's network. The telephone utility is seeking a $7.40 increase in urban loop rates to $15.43, and an increase of $8.26 in suburban loop rates to $16.41.

The lower migration fee and loop rates are a disincentive for competitors to invest in their own infrastructure, SBC Ameritech spokesman Mike Marker said.

"These rates are artificially low rates that discourage competitors from building their own networks and investing in the state." Marker said. "The whole argument is that if you have lower prices, it encourages the phone competitors to rely on our network."