Missouri legislature dials in on phone competition

Even proponents admit some prices could go up, though they say other pricing could go down. The real benefit of the intended competition via deregulation would be higher-quality services in more places, they say.

“We have crippled the market incentive,” said Republican state Rep. Ed Emery, sponsor of the bill that passed 130-22 on March 6 in the House of Representatives.

He said market competition could fuel the spread of services, such as broadband Internet, to rural areas faster than government regulations.

Officials with AT&T Inc. and Mediacom Communications Corp. said they support HB 1779, which ultimately aims to ease regulations on phone carriers.

But one telecommunications executive voiced opposition.

“Your business out there with more than two phone lines is going to have the rate cap removed the minute this bill becomes effective,” said Matt Kohly, director of regulatory and legislative affairs for Columbia-based Socket Telecom LLC, which offers business phone service in Springfield. “I would think that some of the smaller businesses would be concerned about that.”

Incentive to compete

An example of deregulation under HB 1779 is the bill’s proposal to remove Missouri Public Service Commission’s requirement that phone companies answer customer calls to their business offices or repair bureaus within 15 seconds. Such deregulation would apply to traditional and Voice-over-Internet Protocol, or VoIP, phone carriers.

Phone bills would be most impacted by a proposed change in price-cap rules. Under HB 1779, if at least 55 percent of a carrier’s access lines are in markets deemed competitive – markets with at least two wired competitors and at least one wireless competitor – then that company could be considered competitive statewide, and rural price caps would be eased.

“It actually changes the price-cap mechanism … to one that’s governed by the companies’ existing competitive areas,” Emery said. “It’s no longer an arbitrary (cap) made by bureaucrats. Now, it is determined by the marketplace and applied across the whole state.”

Officials with incumbent local exchange companies, or ILECs, think that’s a good change.

For years, ILECs, such as San Antonio-based AT&T and Monroe, La.-Based CenturyTel Inc., have sold basic phone services to rural customers under government obligation and at a capped rate that left little room for profits. ILECs aren’t required to offer advanced services in rural areas, and the lack of profit and high cost of doing business in those low-density areas dissuade competitors from throwing their hats in the ring, according to Mike Haynes, regional director of external affairs for AT&T in southwest Missouri.

Haynes said AT&T only charges $7.15 a month for basic phone service in its smallest markets, which have less than 5,000 access lines and are deemed noncompetitive. The company can charge more in competitive urban markets, such as Springfield, which also have a lower cost of doing business due to density. For years, AT&T has been supplementing its loss in rural areas with its profits from urban areas, Haynes said.

“As long as you artificially suppress prices, you are never going to provide an incentive or an interest for someone else to come in,” Haynes said. “It’s by no accident that most of our competition for landlines is in metro or smaller cities, because there’s money to be made. Nobody’s trying to take our $7 customers.”

Basic AT&T residential phone service in Springfield is $13.75 a month, plus taxes and other fees. Haynes said most customers order bundle services, though he couldn’t disclose what most people in Springfield pay for phone service. According to www.att.com, bundle packages including unlimited long-distance, Internet, cellular service and satellite TV, range from $65 to $148.

Squeezing out competition

Socket’s Kohly said phone prices are sure to increase if HB 1779 becomes law.

After state legislation passed in 2005 to establish the current definition of competitive markets, price caps were lifted, and basic phone service prices increased 25 percent in Kansas City and St. Louis and 43 percent in some smaller towns, such as Sedalia and Cape Girardeau, Kohly said.

AT&T’s Haynes doesn’t think prices will increase in urban areas, but he expects some upward pressure on rural prices.

Kohly predicts large incumbent carriers will exploit the pro-competition bill to squeeze out competition by choosing where to undercut prices. He said smaller companies, such as Socket, wouldn’t be able to compete against companies with an entrenched and far-reaching customer base. Socket is considered a competitive local exchange company, or CLEC.

“When they lower rates, they’re not going to do it across the board,” Kohly said. “They’re going to do it on a customer-to-customer basis, so our fear is they’ll use one area where there’s no competition to subsidize competitive areas.”

HB 1779 is in Senate subcommittee and isn’t scheduled for a vote on the Senate floor, but sponsor Emery is optimistic that the bill will pass before the session ends in May.[[In-content Ad]]