New Era of Telephone Service Officially Opens - The 'Anthony Plan'

Tulsa Daily Commerce & Legal News - May 24, 2000

A new era in local telephone service in Oklahoma officially opens with the mid-May effective date of the Oklahoma Corporation Commission rules fundamentally changing the way regulations have been applied since statehood.

The new rules stem from "The Anthony Plan", named for Corporation Commission Chairman Bob Anthony who used his office to fashion a compromise agreement between Southwestern Bell, other incumbent telephone service providers, potential competitors, the Office of the Attorney General and Commission public utility and legal staffs.

The rules allow telephone companies serving 75,000 or more access lines in the state the option of moving from traditional rate-of-return regulation, which restricts investments companies can make in Oklahoma, to an alternative form of regulation which sets prices for consumer services based on the cost and market conditions of providing that specific service.

Although just becoming formally effective, the plan already has shown early benefits as many companies filed for certificates to serve Oklahoma residential and business telephone markets.

"Opening the local market to competition will provide customer choice while encouraging companies to develop service packages tailored to customer calling patterns," Anthony said. "In addition to customer benefits, these companies bring jobs to our state ranging from sales to technical support.

"Southwestern Bell’s commitment to infrastructure development, along with the investment by new companies entering the market, will provide Oklahoma the telecommunications network needed to support the rapid growth in electronic commerce, enhanced research and educational opportunities and Oklahoma’s excellent telemedicine system," Anthony said. "Through the Internet and a strong telecommunications network, Oklahomans can bring good jobs and services to their home, school or local heath care facility."

Jim Epperson, Southwestern Bell-Oklahoma, president, said the shifting from rate-of-return regulation has allowed Bell to significantly increase its investment in Oklahoma. The company has also significantly expanded its high speed internet access bringing DSL technology to 39 rural communities.

"While all three of the corporation commissioners played a significant role in gaining approval of the final plan," Epperson said, "It was Commissioner Anthony who took the lead by proposing the document that became the final working draft and bringing all parties to a consensus.

"In earlier writings, Chairman Anthony laid out a vision for telecommunications in Oklahoma," Epperson said. "That vision is becoming a reality and Oklahomans will win because of his pacesetting work."

Denise Bode, Commission vice chairman, recognized Anthony’s leadership in structuring the negotiations.

"This was an issue that had been under study for some months before our Telecommunications Advisory Group," Bode said. "But, discussions reached a stalemate. By stepping forward with a streamline framework proposed by the chairman’s office, Bob was able to break the logjam and keep negotiations on track, resulting in an agreement containing strong consumer protections and receiving support from virtually all of the competitors in the telecommunications industry."

Anthony said the basic concept was to provide a regulatory plan that addresses today’s high-tech, global marketplace.

"When telephone service was first being installed in this country, it was very expensive to run cable and maintain the necessary switching equipment," Anthony said. "To have an opportunity to meet these expenses, companies were assigned service territories where they operated as a monopoly. In exchange, government oversight agencies set the maximum return the company was allowed to earn on its investment. This overall return was then divided into prices for individual services.

"Today’s new technologies have revolutionized the telecommunications industry," he said. "Oklahoma needs a regulatory format that brings these new products and services to the consumer at affordable prices, while allowing telephone companies an opportunity to realize a return on their investment.  Technology has made telecommunications a global industry, and Oklahoma must be ready to compete for investment and job opportunities in that global economy."

In return for shifting to alternative regulation, the company must agree to open its local service to market competition, Anthony said. Realizing that it will take time for competitors to expand into the market, the rules cap basic local exchange rates at their current level for up to five years. Capping, rather than freezing, means rates cannot go up, but may come down as competitors enter the market.

Even after the five year period, these rates are restricted to increasing only by inflation less one percent per year until the Commission makes a finding that competition exists for that exchange.

By comparison, the state’s smaller phone companies, by statutes adopted in the mid-1980s, are allowed to raise basic local exchange rates a maximum of $2 per month once a year without Commission approval, Anthony said.

To participate in alternative regulation, a company must have an approved "transition plan" on file with the commission, he said. Currently, two companies would be eligible for this type of alternative regulation program.

Bell’s transition was approved in December, 1999. Valor recently completed its acquisition of the local telephone service of GTE in Oklahoma. To become eligible for alternative regulation, Valor also would have to receive approval of its transition plan.

Bell’s transition plan contains incentives for competition by offering promotional discounts for those networks elements competing companies may lease from the incumbent carrier.

"We told them we wanted the best rates offered within the Southwestern Bell region," Anthony said. "Bell was willing to offer the promotional rates for five years. New customers cannot be signed up under the promotional rates once 25 percent of the residential and 25 percent of the business lines are serviced by competitors for that exchange."

Potential competitors noted it takes seven months to recoup the initial investment and start earning a profit from a residential connection.

In the plan, Bell was willing to accept 50 percent of the non-recurring cost up front and to waive the remaining 50 percent if the competing company can prove they did not retain the residential customer for at least seven continuous months. Bell contacted competing local exchange companies certified in Oklahoma in mid-May with the promotional discount period becoming effective in mid-June.

In the transition plan, Bell also agreed to upgrade the remainder of switches so it will have a 100 percent digital network and to expand its high-speed data transfer and Internet access to all communities with either 10,000 access liens, or a four-year state university, a total of 22 towns. This program was so well received, Anthony said, that Bell has moved forward completion of installation to the initial 22 communities to the end of 2000 and has added 17 additional communities to the list.

Although Bell must continue to pay its assessment to the Oklahoma Universal Services Fund, the company agreed not to pass this charge to its customers for the next five years, Anthony said. The OUSF fluctuates annually, based on the amount needed to meet its legislative mandate for that year. At the current level of 9 cents per customer line per month, – not passing through the charges for five years would be a customer saving of about $8 million.

However, he said, the assessment has run as high as $1.48 per month.

"Taken together, the rules and transition plan present a well-rounded package," Anthony said.

"The program contains strong incentives for competitors to enter the market while providing ratepayer protections through price caps until competition is established. Customers further benefit from accelerated infrastructure development and a five-year holiday from the OUSF fee."

© 2000 Tulsa Daily Commerce & Legal News

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