Broadband Cable Association of Pennsylvania

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January 18, 2013

In August 2006, the California Public Utilities Commission voted unanimously to allow AT&T and other companies that provided local telephone service to raise prices at will. Then-Commissioner Rachelle Chong, a Republican, credited as the driving force behind the deregulation plan, argued that growing competition from Internet phone service and cell phones would keep prices low. "By the end of the 2010, these rate caps will no longer be necessary," Chong said when the new rules were being phased in. "The market will be so competitive it will discipline prices." Too bad it didn't work out that way.

Since fall 2006, AT&T's price for flat-rate landline phone service has leaped 115 percent, from $10.69 per month to $23, according to information from the commission. The monthly price for measured service, which charges a fixed rate for a limited number of calls, has soared 222 percent - from $5.70 to $18.35. Call-waiting charges popped almost 180 percent. Anonymous call rejection costs nearly quadrupled. Even flat-rate prices for the LifeLine Program basic service, discounted for California's low-income households, have risen 28 percent.

AT&T's price increases far outstripped those of its smaller landline competitors. Verizon's flat-rate service climbed only 18 percent during that period, while SureWest and Frontier increased charges by about 6 percent. That gap is due in part to the fact that AT&T started with far lower rates before deregulation, which has been attributed to its efficiencies of scale compared with rivals when rates were capped in the mid-1990s. But its prices are now the highest among the four competitors for basic residential service, by anywhere from $2 to $6 per month, according to PUC data. The commission doesn't break out total numbers of landlines by company, but AT&T and Verizon together controlled 97 percent of the total market, according to a 2009 report.

It's difficult to think of other consumer goods or services that have more than doubled in price during the last six years. U.S. median household income has actually moved in the opposite direction. It stood at $50,054 in 2011, down 8.1 percent since 2007, according to the Census Bureau. "My belief is that AT&T is essentially harvesting," said Dane Jasper, chief executive of Sonic.net, a competing broadband Internet service in Santa Rosa that tosses in domestic phone service for free. "They jack up the rate by a pretty egregious amount ... because if people leave, well, where are they going? AT&T mobile phone service in at least half the cases. "So they're happy to have them leave or happy to have them stay," he said.

Maybe more so the former, though. AT&T has made it clear it wants to get out of the copper line business altogether, announcing plans in November to decommission the aging system as it builds out more profitable broadband and wireless services. The company has asked the Federal Communications Commission to drop rules requiring it to support the legacy networks. Problem being: As of late 2009, about 24 percent of California households still relied solely on landlines. AT&T spokesman Lane Kasselman stressed that the company's rates are competitive with the industry, and that it offers a variety of affordable packages, including a new monthly plan for $19.99. "Californians have more choices than ever before in communications services, and our pricing has changed to fit the marketplace," he said. "Californians have a variety of choices for telephone service including wireless and (Internet calling), but AT&T wireline service remains an affordable option with service available for less than a dollar a day - and for low-income consumers for as little a 12 cents a day."

Chong, an appointee of former Gov. Arnold Schwarzenegger to the commission, didn't earn a second term. But she landed on her feet, serving as vice president of government affairs in California for Comcast, another company with occasional business before regulators, until some point last year. Chong didn't immediately respond to inquiries through Comcast, the California Emerging Technology Fund, where she serves on a panel of experts, or over Twitter. Chong wasn't the only one predicting that the invisible hand of capitalism would keep things in check for consumers.

The free market faithful on the opinion pages of the Orange County Register and Wall Street Journal applauded the 2006 move too, with the former writing: "Companies can charge what they want, but unless buyers are willing to pay that price, prices won't go up. Usually, competitive pressures force improvements in quality and lower prices as companies do whatever they can to lure new customers." The Institute for Policy Innovation, a Texas free market think tank, went further in a news release after the vote: "Californians could be on their way to paying less for phone service as well as enjoying new services and better products."

Do these deregulation zealots get tired of being wrong all the time? Or embarrassed? Remember how the partial deregulation of California's energy markets brought rolling blackouts, soaring wholesale prices and the market manipulations of Enron? Remember how the dismantling of the Glass-Steagall Act and other banking rules delivered credit default swaps, rampant mortgage fraud and the near collapse of the global economy? Not everyone made a wrong call on phone deregulation, of course. The consumer advocacy groups that the Orange County Register painted as Chicken Littles for predicting "prices will go through the roof" turned out to be spot on. In fact, history was on their side even then. In 2006, some were strenuously pointing to Florida, where residential phone prices climbed between 30 and 90 percent after deregulation.

As much as cell phones have offered new options, some feel compelled to stick with landlines for a variety of reasons, including that they're more reliable during emergencies and often cheaper, said Mindy Spatt, spokeswoman for The Utility Reform Network in San Francisco. "The commission gave up its authority under the theory that consumers could vote with their feet and the market was competitive," she said. "But in reality most consumers are stuck with AT&T and stuck with these higher prices." San Francisco Chronicle


Liberty Media Corp., the holding company that announced plans last year to take over Sirius XM Radio Inc., gained majority control of the satellite-radio provider with its latest purchase of 50 million shares. Liberty Media now owns 1.99 billion common shares and 1.29 billion convertible shares, according to a filing yesterday. If the converted stock is added to the outstanding shares of New York-based Sirius, Liberty Media owns about 50.5 percent.

Liberty plans to take control of the Sirius board, putting it in position to choose a new chief executive officer. James Meyer was named interim CEO in December, replacing Mel Karmazin, who resigned last year. Liberty will consider returning capital to Sirius shareholders with stock buybacks or a dividend, Liberty Media CEO Greg Maffei said in November. The Federal Communications Commission approved the transfer of broadcast licenses earlier this month, the last major hurdle preventing Liberty from finishing its takeover of the satellite- radio company. Liberty said it would own more than 50 percent of outstanding shares within 60 days of FCC approval. Shares of Liberty Media, controlled by billionaire John Malone, fell 0.2 percent to $110.32 at 9:54 a.m. in New York. Sirius rose 0.8 percent to $3.17. The satellite-radio company's stock climbed 59 percent last year, helped by recovering auto sales. Sirius radios come pre- installed in about two-thirds of new cars. Bloomberg

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