Wires Cross on PacBell Long-Distance Decision

SBC Pacific Bell claimed Thursday that it won state approval to offer long-distance phone service in California. But there’s one big caveat: State regulators disagree.

The California Public Utilities Commission voted 4 to 1 to approve a petition by SBC PacBell, the state’s biggest local phone company, to add long-distance service to its offerings. That paves the way for the company to seek the blessing of the federal government and begin offering long-distance service by Christmas.

But the PUC also voted to bar SBC PacBell from carrying long-distance traffic within the state until it can show that to do so would not hinder competition. The resulting split decision may well preclude the company from offering a service that matches those of its competitors.

Although SBC PacBell could carry long-distance calls to cities in other states, it could not offer such service between cities within California.

PUC Commissioner Geoffrey Brown said the agency would not allow SBC PacBell to sell long-distance service within California until the company eliminates competitive barriers and proves that its move into long-distance is in the public interest.

“This is a good, strong start for SBC PacBell, but there’s things that still have to be done,” Brown said.

Consumer advocates said that all the commission did was punt the issue to the Federal Communications Commission, which also must approve SBC PacBell’s request. Although the PUC found that the phone company had not met all the necessary state requirements for long-distance entry, the agency ruled that most of the federal requirements had been met, said Michael Shames, executive director of the Utility Consumers’ Action Network in San Diego.

“What happens now is a great question,” Shames said. “This sets up another showdown in the December-January time frame when SBC PacBell tries to offer long-distance in a state where state commissioners have said, ‘You haven’t passed our test yet.’ ”

But SBC PacBell executives believe the vote allows them to move forward. The company said it would submit its application to the FCC today.

“If you look at the order they voted on, there is no finding of fact that we are prohibited in any way from offering intrastate long-distance service,” said Lora Watts, president of SBC PacBell.

The confusion is likely to trigger a messy showdown involving the state’s most powerful phone company, state and federal regulators and long-distance companies AT&T; Corp., WorldCom Inc. and others. Even if the PUC declines to assert its authority to stop SBC PacBell from selling long-distance service, the company’s competitors probably would go to court to do so, given the dollars at stake.

California is the nation’s largest long-distance market, worth an estimated $10.5 billion a year.

The market is especially important to SBC PacBell because it expects to quickly convert many of its more than 10 million local-service customers into long-distance customers. That strategy has worked in other states such as Texas, where the firm has offered customers a bundle of services.

Many consumers have expressed a desire to simplify their communications services by consolidating them on one bill from one provider.

Consumer advocates, however, decried SBC PacBell’s stated victory because they fear it will give even more power to a company that has a near-monopoly on local phone service. SBC PacBell, a subsidiary of San Antonio-based SBC Communications Inc., has 90% of the home phone lines in its California territory.

“Competition can’t work when one company dominates the entire state,” said Regina Costa, telecommunications director at the Utility Reform Network, a consumer group in San Francisco. “If there are any gains to customers in the form of reduced [long-distance] rates, they will be temporary at best. Once PacBell has dominated the California market, they’ll have no incentive to keep bills low.”

Costa said she also fears that the company’s marketing would not be sufficiently restrained. In the last year, SBC PacBell has been fined more than $52 million by state regulators for sales and marketing abuses in the residential phone and high-speed Internet access markets.

Under state law, SBC PacBell can gain entry to the long-distance market only if the PUC decides it would be in consumers’ best interest and would not harm competitors. At Thursday’s PUC meeting, the commissioners found that the company had met just one of four specific legal requirements. As a result, they voted not to let SBC PacBell sell long-distance service within the state.

“As far as we’re concerned, we can’t authorize in-state long-distance,” said Commissioner Brown. “If the FCC were to override the state, that’s their business.”

Under the 1996 Telecommunications Act, the so-called Baby Bell local phone companies cannot sell long-distance service in their home territory until they have sufficiently opened their local lines to competitors who want to sell local service.