PHONE COMPANIES Will competition fade with lapse of rules?

Phone companies disagree on whether rule changes will mean higher rates.
DALLAS MORNING NEWS
In the last eight years, 19 million consumers and small businesses switched their local phone company and millions others signed up for discount calling plans from their existing Baby Bell provider.
That movement is saving Americans $11 billion annually and has lowered phone bills by an average of 23 percent, according to one estimate.
Whether consumers will continue to enjoy that windfall was called into question this week after the Bush administration said it would no longer defend regulations that prompted the competition.
On one side, consumer advocates and companies such as AT & amp;T Corp. said prices will rise and competition will wither, because Baby Bell rivals' costs will increase so much they will no longer be able to provide service to many Americans.
The nation's four local-phone giants scoff at that characterization. They point to wireless and Internet telephony as new competitive forces driving down prices and increasing choices.
Deregulation rules
The rules at the heart of the debate came out of a 1996 federal deregulation law. They let AT & amp;T and others rent pieces of the nation's former monopoly local-phone networks at deep discounts and resell service to consumers and small businesses.
The U.S. Appeals Court in Washington struck down the rules in March. Top officials, citing the changing nature of telecommunications, said Wednesday that they wouldn't take the fight to the Supreme Court.
That virtually guarantees that the rules will lapse next week and be phased out in the coming months, experts said. (The Supreme Court could still take up an appeal by state regulators and AT & amp;T.)
Federal Communications Commission Chairman Michael Powell said Thursday that the agency would quickly begin work on new wholesale rules. The agency will also craft guidelines to assure that the industry's transition from the current wholesale arrangement is orderly and doesn't affect phone service.
AT & amp;T's argument
Len Cali, an AT & amp;T vice president, said retail phone rates would inevitably rise when Baby Bells such as SBC Communications Inc. increase the wholesale rates they charge rivals.
"We are going to be obliged to pass significant rate increases to our customers," Cali said.
And with less competition to keep them in check, the Baby Bells will also be able to increase their own prices for certain services, he added.
Now, AT & amp;T, MCI Inc. and other rivals pay an average of $16.79 a month per line to use the Baby Bell networks. The rates vary by state and range from $12 to $28 a month.
By comparison, residential retail customers pay $23.38 a month for basic local-phone service nationally. Those prices don't include charges for call waiting, voice mail and other services that boost profits for phone companies.
SBC has in the past proposed increasing wholesale rates to an average of $26 a month for the 13 states it operates in. Executives said the increases would mean a modest reduction in rivals' profits and bring the rates in line with SBC's costs.
"It's totally hysterics and chicken-little, sky-is-falling rhetoric for AT & amp;T to say that some fairly minor increases that might be coming down the road will cause them to exit markets," said Jim Smith, SBC's senior vice president-FCC.