News

Armstrong Higher on Phone Competition

6/16/2002 8:00 PM Eastern

C. Michael Armstrong is no longer bearish on local phone competition.

He's a bull now.

A year ago last January, the AT&T Corp. chairman and CEO declared the Telecommunications Act of 1996 was a failure, claiming regulators had allowed the Baby Bells to frustrate competition.

If state utility panels refused to cut network access rates, Armstrong threatened to pull his company from the New York and Texas markets.

It appears that the state regulators took Armstrong's threat seriously.

Starting in New York and then spreading to Michigan, Illinois, Indiana, and Ohio, state regulators began to slash the prices that the Bells and other phone incumbents may charge for the network elements new rivals need to lease and compete.

Armstrong trumpeted the fact that rates in Michigan allowed AT&T to sign up 100,000 local phone customers in three months.

In a speech here, Armstrong praised those states and hailed their pricing decisions for producing the kind of local phone competition that the telecom law had promised.

"Now is not the time to change the rules," Armstrong told the American Enterprise Institute, a conservative think tank. "Misguided legislation or ill-conceived regulatory action would return us to the cold, non-competitive climate we left six years ago."

The once-dour executive is now saying that local phone competition is taking root, despite a 95-percent market share for incumbents.

"I am here to tell you that things are changing," said Armstrong. "Competition is beginning to heat up in the local market, at least in some states."

The Federal Communications Commission is considering scaling back the number of network elements a phone incumbent must furnish its rivals. The agency must also decide whether to allow line-sharing rights to new entrants, or whether to lease them just the data portion of the copper loop.

Asked if he thought regulators might hurt the competition he said was blossoming in several states, Armstrong said, "I think they will do no harm."

A spokeswoman for the United States Telecommunications Association, which represents hundreds of local phone firms, agreed that voice competition was growing but disputed the need for the FCC to impose network-sharing requirements on digital subscriber line service when cable controls 70 percent of the high-speed-data market.

"Unfortunately, AT&T seems to support efforts to force the same regulatory structure for voice services onto DSL, which we are adamantly opposed to," said USTA spokeswoman Allison Remsen.

AT&T and other new entrants into the local phone and data markets are seeing some success at a time of judicial uncertainty.

The Supreme Court recently ruled that the FCC may impose a cost formula on network elements that is forward-looking, which makes the rates attractive because they are devoid of actual historic costs.

But a few days later, a panel of the U.S. Court of Appeals for the D.C. Circuit told the FCC that its list of network elements that must be furnished to rivals at forward-looking rates was not sufficiently tailored to the competitive landscape, and that its line sharing rules on DSL were void for similar reasons.

Armstrong — who jokingly referred to the two-week interval between the Supreme Court case and the D.C. Circuit ruling as "The Golden Age of Competition" — said the tension created by the two rulings introduced uncertainty in the market.

"It's enough to make investors run for the exists, and they have. And they will keep running until we have a strong and unambiguous commitment to competition," he said, noting that 1.7 million of the 3 million customers served by competitors in New York are provisioned with unbundled network elements.

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