ECONOMIC IMPACT OF UNE RULES HARMS CONSUMERS, STUDY SAYS

UNE prices are “set so low” that they discourage CLEC and ILEC investment,” TeleNomic Research Pres. Stephen Pociask, author of the report, said. The report said the prices made the ILECs’ wholesale services unprofitable and discouraged ILEC investment. Pociask said he estimated that with current UNE prices, ILECs could lose $38 billion in revenue if they were “forced to sell all retail services at today’s bargain wholesale rates,” and $11 billion of it would come from Cal., N.Y. and Tex. The value of discounting below incremental cost and retailing is $23 billion, he said, a figure that represented the value of the subsidy paid by the ILEC for the benefit of the CLEC. Pociask said ILECs received money to pay for bargain discounting that CLECs received from the revenue that came from retail customers that bought local telecom services, and ILECs’ retail customers paid an average of $203 per year to support one UNE-P customer. “So, CLECs lease and they gain subsidy, but when they build their own network they receive no subsidy,” he said.

As a direct result of low wholesale price, industrywide telecom investment has fallen 40% in the last 2 years, the report said. Pociask said UNE-P regulations were “usurping market forces” and harming facility-based competitive and incumbent carriers.

Public policies that impede telecom investment harm the economy, the report said. It said the fall in telecom investment resulted in an annual decline in economic output of $101 per average household. Meanwhile, the benefits of price reductions resulting from local competition were estimated at $11 per household per year. “The economic costs associated with setting artificially low wholesale prices far outstrip the consumer financial benefits,” it said.

A Voices for Choices spokesman said the Bells were “caught in a conundrum of their own making: They concede that competition has spurred them to price their own services more competitively, yet that also claim that eliminating this competition somehow accelerates their willingness to continue this process.” An AT&T spokeswoman said the study was “of mythical proportions that only a monopolist could dream up” and it seemed to say that “consumers are hurt by paying less.” She cited the U.S. Supreme Court, which had said claims that UNE-P discouraged investment “founders on fact” and the Bells alternative pricing methodologies would “pass on” to competitors the inefficiencies caused by poor management… or poor investment strategies” of the Bell companies: “The upshot would be higher retail prices consumers would have to pay.”

ALTS called the study “misleading,” “confusing” and “flawed.” ALTS Pres. John Windhausen said there was “substantial evidence” that UNE prices encouraged competition: “ALTS’ companies have invested over $70 billion to build competitive local networks since 1996, and the Bell companies increased their level of investment to record levels during the same time.” ALTS said network investment levels rose “to historic highs” in 1996-2000, “while many of these same UNE prices were in effect,” and the overall level of network investment in 2002 was higher than before the 1996 Telecom Act and before the UNE prices were being set. It also said existing retail rates often represented “near- monopoly rates” that included the “recovery of efficient investments and excessive profits for the RBOCs. To assume that these rates are correct and that any lesser rate is a ’subsidy’ is a major flaw in the report.”