Approves Plan to Abolish Many Phone-Rate Price Caps
By James S. Granelli, Staff Writer
Los Angeles Times
Thursday, August 24, 2006
Ending decades of government price regulation, the Public
Utilities Commission on Thursday approved a plan that allows
California's major phone carriers to raise residential rates
The unanimous decision to abolish most price caps came after
the commission concluded that competition from cable
carriers and wireless providers has grown strong enough to
check rate hikes by traditional landline phone companies
such as AT&T Inc.
Just to be sure, though, the PUC reserved the power to step
in and curb excessive price hikes. It also froze rates for
some poor and rural customers, who have less access to new
How the new rules, which take effect immediately, will
affect monthly bills is uncertain. The PUC regulates only
basic local service as well as rates for toll calls within
the state. Most customers, though, pick and choose from a
panoply of other features and calling plans to customize
service -- and price.
AT&T, the state's dominant phone carrier, said the average
monthly bill in California is $37.71, down 28 percent from
five years ago.
Allowing market forces to replace regulation achieves a key
goal of the last major revision of federal
telecommunications rules. Congress in 1996 allowed cable
and phone companies to use their networks to compete head-on
for the same customers. That's why cable carriers now sell
phone and Internet service alongside ESPN and HBO.
Regulators in 28 other states -- including Texas, Missouri,
Indiana and Kansas -- already have abolished or rolled back
rate caps in the past year. It's still too early to
determine the effect on rates in those states.
"These are new rules for a new era," said Timothy J.
McCallion, Western region president for Verizon
Communications Inc., California's second-largest carrier.
"The biggest winners, by far, will be consumers, who will
see more choices for communications and entertainment."
AT&T senior vice president Cynthia Marshall said Thursday's
change will give big carriers the flexibility to "react more
quickly" to competition.
Consumer advocates were skeptical, noting that telephone
companies always could lower prices in the face of
"I'm not saying this is a nuclear winter, but the
temperature feels a lot lower now," said Natalie
Billingsley, chief telecom analyst for the PUC's consumer
protection arm, the Division of Ratepayer Advocates.
Regina Costa of The Utility Reform Network in San Francisco
said the PUC failed to gather solid evidence to support its
proposition that competition is strong enough to keep prices
in check. Instead, it relied on federal surveys she said
tend to overstate the amount of competition in a community.
Another wrinkle in assessing competition: The two biggest
wireless phone companies, Verizon Wireless and Cingular
Wireless, are owned by Verizon and AT&T, respectively.
Together, Verizon and Cingular control half the wireless
"This is a commission that isn't interested in doing its
job," Costa said. "They have basically told the world that
they aren't going to do what state law requires them to do:
To make sure rates are just and reasonable and to foster
The cable industry generally supported the PUC's move to
base phone prices on the open market, said Lesla Lehtonen, a
vice president at the California Cable & Telecommunications
Assn. trade group.
Neither AT&T nor Verizon plan to change prices soon. Since
1994, regulated rates for basic local residential service in
metropolitan areas has been $17.25 a month for Verizon
customers and $10.69 a month for customers of AT&T, formerly
known as SBC Communications Inc.
But with toll calls, fees, surcharges and taxes added, the
typical bill for an AT&T customer in Los Angeles rose 31
percent to $17.56 since 1993. Over the same period, the
price for Verizon service in Long Beach rose 46 percent to
$25.38, according to Federal Communications Commission
A majority of customers, though, order both local and
long-distance service from the same company, a bundle that
can allow for discounts while raising the overall cost.
Nationally, average local phone rates have risen 20 percent
to $36 over the past decade while the overall cost of living
has climbed about 28 percent. Over the same period,
long-distance rates have plunged to $8 a month from $21,
according to the FCC.
Add cell-phone service to the mix, and Americans spent $97 a
month on telecommunications last year -- a 90 percent hike
over their average bill 10 years earlier.
Thursday's changes, spearheaded by Commissioner Rachelle
Chong, were the first major revisions to California's rate
structure in 18 years. California has regulated telephone
service since 1912.
Chong said Californians enjoy "a fiercely competitive
market" with "hundreds of phone companies competing for your
Commissioner Geoffrey F. Brown harbored "substantial
reservations," but voted for the new framework because the
old one is "unsustainable."