From the DallasMorning News:

SBC finds allies in state legislatures
Illinois lawmakers are the latest to override utilities regulators' rules

05/13/2003

By VIKAS BAJAJ / The Dallas Morning News

In states where regulators offer it unsympathetic hearings, SBC Communications Inc. often finds much warmer receptions by knocking on legislators' doors.

On Friday, Illinois became the third state SBC operates in to overrule utilities regulators in a year. Gov. Rod Blagojevich signed a bill that effectively doubles rates the company can charge rivals to use its lines and telephone equipment.

The vote comes on the heels of Texas lawmakers' approval of a bill that stopped regulators from issuing guidelines on promotions and discounts San Antonio-based SBC can use to win back customers from competitors. And last year, Oklahoma legislators stripped a state agency of its authority over the company's broadband networks.

Seven years into local-phone deregulation, regulators and phone companies are still hashing out rules, large and small. The most contentious debates are about how much former monopolies can charge competitors to rent telephone lines and switches and whether new broadband portions of their network must be shared with rivals.

Many state regulators have recently lowered the wholesale rates and have considered imposing rules on broadband. Having failed to sway policy-makers to their side, SBC and its fellow Baby Bell phone companies have taken their case to the courts, Washington and, more recently, state legislatures.

Critics charge that SBC is using its vast stores of political capital and the threat of mass layoffs to outflank regulators.

"Our concern is that important pocketbook issues become overly politicized at state legislatures," said Tim Morstad, a policy analyst at Consumers Union. "And consumers deserve to have these issues debated with politics outside the process."

SBC said it's playing fairly in both the legislative and regulatory arenas, noting that lawmakers are petitioned daily on a wide range of complicated and mundane business issues.

"This process is fair for everybody," said Selim Bingol, an SBC spokesman. "Legislators are elected officials, obviously. And they are listening to their constituents, which include a lot of employees of ours. .... This is part and parcel of how the system operates."

In Illinois, the company, with the help of labor unions, convinced legislators that the Illinois Commerce Commission had set wholesale rates – an average of $12 per line per month – below its costs. The average wholesale rate for the nation is $16.12. In Texas it is $19.17.

After signing the bill, Mr. Blagojevich, a Democrat, said it would keep jobs and investment dollars in the state and would even lower retail rates that consumers pay. His spokesman, Tom Schafer, didn't return calls Monday.

The legislative fight in the state was marked by large campaign donations and aggressive lobbying by the telecommunications industry. SBC gave $568,900 in contributions during the 2001-2002 election cycle and its largest rival AT&T Corp. gave $449,400, according to the Illinois Campaign for Political Reform.

More than money, however, SBC's 21,000 employees swayed the Illinois General Assembly, said State Sen. Barack Obama, D-Chicago.

Labor's role

"The most important factor in Democrats voting on this bill was the fact that organized labor got behind the bill," he said. "And I am a strong labor supporter, and that's what made the vote difficult for me."

Mr. Obama said he voted against the bill even though he's sympathetic to SBC's complaints about wholesale rates because he doesn't feel politicians are best positioned to decide the issue.

"We as legislators generally lack the expertise to make assessments about rate structures and have no way of evaluating whether this will result in less competition and therefore higher prices for our constituents," he said.

Mr. Bingol said the final pricing decisions still rest with the Illinois Commerce Commission and the fact that the company has a lot of employees in the state is relevant to the debate.

"We have a lot of people there in comparison to our competitors, who have next to none," he said. "We built and maintain and install the network."

That labor advantage has made it hard for rivals to get their voices heard, said H. Russell Frisby Jr., president of the Competitive Telecommunications Association.

"We are doing lobbying of our own in all of the states wherever the battles come up," he said. "We are trying to bring facts to the front."

The Illinois Commerce Commission didn't take a position on the legislation. Utilities regulators, typically, don't take stands on legislation.

Waiting

In Texas, Public Utility Commission Chairwoman Rebecca Klein defended the agency's proposal to impose a 30-day waiting period on former local-phone monopolies before they could try to win back customers. But the agency didn't take a stand on another controversial bill that would have deregulated broadband.

SBC gave $778,227 in 2001-2002 through its employee political action committee, and its executives donated $92,379 individually, according to Texas campaign finance records. By comparison, AT&T gave $176,050.

A representative for state regulators said legislatures should wait until the Federal Communications Commission issues a comprehensive ruling on wholesale rates and broadband this summer before crafting new laws.

"What the FCC does has the potential of being pre-emptive," said Brad Ramsay, general counsel for the National Association of Regulatory Utility Commissioners.

To be sure, several states have shot down SBC-backed bills on broadband and wholesale rates.

In Texas, Rep. Phil King, chairman of the Regulated Industries Committee, has said the Legislature won't have enough time to take up broadband this session.

Missouri and Kansas decided not to enact broadband legislation. Indiana Senate leaders and Gov. Frank O'Bannon are opposed to a broadband bill that the House passed.

SBC stock closed up 97 cents at $24.64.

E-mail vbajaj@dallasnews.com