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Local
Telephone Competition Still on Hold
Monopoly Phone Companies and High Cost Pre-Paid Service Dominate Residential
Market Five Years After Launch of Competition
Southwest
Regional Office
January 2001
In Brief
As the fifth anniversary of the signing of the Federal Telecommunications Act
(FTA) approaches, Texas consumers find the promise of competition in the local
telephone market all talk, and no savings. Indeed local phone bills are higher,
rather than lower, for consumers who use minimum service. These findings are
striking, considering Texas is one of only two states to have its local phone
market pass the federal "checklist" as being sufficiently open to
competition.
On December 16, 1999, Texas Public Utility Commission (PUC) Chairman Pat Wood
III declared "this market is open" and "competitors have a meaningful
opportunity to compete." Commissioner Brett Perlman predicted that "Texas
will be the most competitive market for local phone service."(1)
However, more than a year after those bold predictions, five years after the
federal law, and nearly six years after passage of a state law to promote competition
for local telephone service, there are few companies emerging as true competitors
to incumbent Southwestern Bell Telephone (SWBT). This lack of local telephone
service competition in Texas leaves local monopoly providers and their rates
largely unchallenged.
Local telephone books continue to list dozens of companies as "Local Service
Alternatives." However, most of the companies surveyed by Consumers Union
Southwest Regional Office do not provide competitive basic service to the typical
household.
Instead, they target high revenue users like business customers or select high-usage
residential customers. Or they target low income people and those with credit
problems, selling them very costly prepaid service.
Meanwhile, those consumers who use only basic service and a few add-ons have
seen increases or new fees and surcharges on their phone bills. In 1999 the
Texas Legislature granted the monopoly phone companies the flexibility to increase
rates for many services without approval of regulators. Since then, Southwestern
Bell has raised prices several times for those services. For example, in June
2000 SWBT increased its monthly rates for residential Caller ID services in
a range of 22% to 30%.(2) And most consumers have
little real opportunity to reject such increases by switching to a different
local phone company.
Local Service in Texas
In September 1995 the Texas Legislature amended the Public Utility Regulation
Act (PURA) in HB 2128 to open up the local telephone market to competition,
primarily for long distance and cable companies. The next year, Congress fully
opened the door to competition for local telephone service in the United States
when it passed the Federal Telecommunications Act of 1996 (FTA). This law introduced
local competition on a nationwide basis and established requirements for Bell
companies to get back into the long distance business.
Supporters of local service competition argued that encouraging vigorous competition
in local service would reduce prices and increase the quality and array of services.
Those competitors offering substandard or overpriced services would, in theory,
suffer loss of market share, thus allowing the market to "protect"
consumers. Therefore, after a transition period, consumers would be protected
from high rates and a declining infrastructure by competition in price and service
rather than by traditional rate regulation. During the transition, the price
for local phone service offered by SWBT and Verizon (GTE) is "capped."
As an incentive for cooperating in opening up their former monopoly market,
the FTA permitted the "Baby Bells" to once again offer long distance
service packaged with their local service (the very situation which existed
prior to the "break-up" of AT&T). To win approval to offer long
distance, state and federal regulators had to find that the local phone market
met a "checklist" of criteria which would enable competitors to enter
the market. Only Texas and New York state have met this test thus far.
Notes:
1 News Release, "PUC Gives SWB Long Distance Full Support,"
PUC of Texas, released December 16, 1999. Brief in Support of Application by
SBC for Provision of In-Region Interlata Service in Texas, Quoted statements
of Pat Wood, January 10, 2000, p. 6.
2 Public Utility Commission of Texas. Scope of Competition in Telecommunications
Markets of Texas. Report to the 77th Texas Legislature. January 2001. p. 64.
