Story last updated at 1:46 a.m. Wednesday, May 4, 2005

Oklahomans await next phase of deregulating telephone industry

Capitol Topic

By Tim Talley
Associated Press Writer

OKLAHOMA CITY (AP) -- Five years after Oklahoma took its first step toward deregulating the telephone industry, phone customers are wondering what the next step will be.

For providers, including perennial market leader SBC Communications and newcomers like Cox Communications, billions of dollars are potentially at stake as competitors maneuver to gain market dominance and increase profits.

But for users, especially Oklahomans with traditional landline phones in their homes or offices, uncertainty over whether new rules will raise or lower prices makes them uneasy as the Oklahoma Corporation Commission considers easing industry restrictions.

Transitional regulations that went into effect in 2000 will expire in June, opening the door for commissioners to consider more changes. A key factor in deregulation is whether Oklahoma's telephone industry is competitive enough to sustain further loosening of the rules.

Officials with San Antonio-based SBC say it is competitive enough. They want lawmakers and regulators to cut the red tape they say stifles telephone competition, keeps prices high and slows their company's ability to offer new services and adjust prices to meet market demand.

"The rules need to catch up with the way consumers are using technologies and services today," said Don Cain, president of SBC Oklahoma, formerly known as Southwestern Bell. The company provides phone service to about two-thirds of the state.

Cain and other SBC officials argue that competition has driven prices down in other segments of the telecommunications industry, including long-distance, broadband Internet access and wireless services, and competition will do the same for landlines.

"Oklahoma has very robust competition," said Cody Graves, a former member of the Corporation Commission and outside counsel for SBC, which has about 1.8 million customers in the state and held a virtual monopoly in phone service for decades.

Since the Oklahoma market opened up to competition five years ago, more than 300,000 competitive phone lines, including those served by Cox and other telecommunications companies, have sprung up, Graves said. "And that figure is growing," he said.

"Consumers are getting a better and better deal all the time," Cain said. "When there's competition, you get the best in terms of price, in terms of quality of service."

Cox, which provides cable television and telecommunications services, argues that any loosening of the regulations might permit SBC to drive competitors out of the state and increase consumer costs, a concern expressed by the American Association of Retired Persons and other consumer groups.

"I think they're trying to jump the gun," said Cox spokeswoman Kym Koch-Thompson. "There's no place for complete deregulation at this point."

To support their argument, Cox officials cite details of a competition study by the Corporation Commission's staff. Among other things, the report says SBC controls about 88 percent of the landline telephone market in the state and that the company appears to be gaining a bigger share of the market.

A graph included in the report showed that competition in the telecommunications industry declined 1.5 percent in Oklahoma in the first six months of 2004, a loss of 27,576 competitive telephone lines.

During the same period, competition increased about 1 percent in Arkansas and 2 percent in Missouri, according to the graph.

The report concludes that "although some degree of competition may be materializing in Oklahoma, the local wireline competitive numbers lag the national average."

"There is a case for relaxed regulation as competition increases," Koch said. "That way the customer is still protected as the competition continues to grow.

"When one company has held a monopoly for more than 80 years...you have to have regulations that will allow competition to occur."

SBC officials disagree with the report and said its conclusions were reached without considering the fastest growing segment of the industry -- wireless.

Cain said traditional landline phones are decreasing in the state and that consumers, especially young consumers, are relying more on wireless phones and Internet access.

"Usage has decreased 21 percent," Cain said, adding that more voice minutes are being logged on the wireless network than on landlines. In the minds of consumers, wireless has become a substitute for landlines, he said.

"Why would you continue to regulate a provider whose lines are decreasing?" he said.

The debate over telephone deregulation is not unique to Oklahoma.

In neighboring Kansas, SBC plans to ask state regulators to eliminate price controls on 47 residential and business services -- including basic service -- in the Wichita, Topeka and Kansas City metropolitan areas.

And questions about telecommunications competition are not confined to telephone providers.

The U.S. Supreme Court is studying a case that challenges the tight control cable companies hold over high-speed Internet service. The California case, which does not involve Cox, will determine whether the industry must open up its lines to competitors.

The Corporation Commission, with a constitutional duty to make phone service available at reasonable rates, has said recent rule changes, including those that go into effect in July, will create a competitive environment among telephone providers.

SBC is demanding that more be done.

"Regulations discourage investment," Cain said. "It's time now to reduce regulations. Let consumers pick the winners and losers in the marketplace."