Mich. AG Takes Issue With Telco Dereg

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Michigan’s attorney general has appealed a state Public Service Commission ruling that deregulated incumbent phone providers in metropolitan Detroit, Flint, Grand Rapids and Lansing.

Attorney General Mike Cox faults state utility regulators’ determination that incumbent telcos such as SBC Communications Inc. face true competition from other wireline providers, including cable companies offering voice-over-Internet protocol telephony.

“With new technologies like [VoIP] and wireless phones being used more frequently by consumers, the market is advancing steadily,” Cox said in a statement. “I am hopeful that eventually the local telephone market will get to the point where deregulation is justified by fair competition.

“Unfortunately, we are not at that point, and consumers need to be protected from unfair rate increases.”

The MPSC ruled Aug. 4 that SBC has met a multipoint test to justify rate deregulation in two of the state’s access areas. The order affects both business and residential service in those regions.

Critics of SBC’s filing asserted the telco still dominates the market, noting that while some of the communities in the regions for which SBC filed for deregulation do have multiple carriers, others have zero or just one competitive alternative.

The attorney general, joined by the state’s chapter of the American Association of Retired Persons, is concerned about rate hikes because the MPSC action voids a state policy that allows for rate analysis and prevents hikes in basic phone rates more than once a year.

Competitive local-exchange carriers argued that technologies such as VoIP, which is just being deployed by companies such as Comcast Corp., are not yet “functionally equivalent” to what’s offered by dominant providers.

But the MPSC was swayed by the findings of an administrative law judge, who ruled that SBC had met the competitive test. Regulators and the judge also apparently heeded the testimony of SBC witnesses such as Dr. William Taylor, senior vice president of NERA Economic Consulting.

Taylor argued that effective competition exists from providers such as wireless carriers and cable companies. Even if their products are not deployed in the area specified by SBC, the mere existence of the competitive products provides “price discipline,” as providers have the means to quickly enter a market if the incumbent raises rates too precipitously, he said.

SBC added that because there are 850,000 high-speed data lines connected to homes in the access areas, VoIP is a viable wireline basic local-exchange service for those customers.

Deregulation was set to take effect 45 days after telecommunications providers notified their customers of the MPSC’s action. According to the attorney general, no provider has filed notice verifications with state regulators so far.

The attorney general filed his suit to prevent implementation in the state Courts of Appeals on Sept. 6. Cox claims the data doesn’t support SBC’s competitive claims.

Cox also faulted the lack of testimony by MPSC staff or independent witnesses. The suit asks the court to determine if state regulators appropriately interpreted the Michigan Telecommunications Act when it granted deregulation to the bulk of SBC’s territory in the state.