Regulatory Response to Rising
Residential Rates
Trevor R. Roycroft, Ph.D.
Presented at the 2009 NASUCA Mid-Year Meeting
June 30, 2009
[email protected]
508-896-0151
Case Study: Rate Deregulation in California
2006 CPUC implemented a “Uniform Regulatory Framework”
for the four largest ILECs in the state.

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AT&T, Verizon, Surewest, Frontier
CPUC concluded that market power has been eliminated, and
that competition is statewide due to the availability of UNEs.


Identifies wireless and VoIP as contributing to the elimination of ILEC
market power.
Rate regulation removed from bundles and ancillary services in
2006.
Transitional price caps for basic service.



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2008 CPUC Order allowed $3.50 per month basic service increases
for January 1, 2009 and January 1, 2010, with full pricing flexibility
beginning January 1, 2011.
Proof of any pudding is in the eating...
AT&T California Residential Rate Increases
Basic Flat
Basic Measured
Basic LifeLine
Percent Increase
Rate When URF
Since URF
Increased Rate
was Implemented
26%
$13.50
$10.69
28%
$7.28
$5.70
14%
$6.11
$5.34
Local Toll
13-20 Miles, Day
>21 Miles, Day
111%
71%
$0.36
$0.42
$0.17
$0.25
Calling Features
Caller ID
Anonymous Call Rejection
Call Forwarding
Call Waiting
Three-Way Calling
Call Screen
Repeat or Speed Dialing
Call Trace
62%
242%
86%
86%
86%
86%
86%
29%
$9.99
$6.50
$6.00
$6.00
$6.00
$6.00
$6.00
$6.00
$6.17
$1.90
$3.23
$3.23
$3.23
$3.23
$3.23
$4.65
Directory Services
Non-Published Listing
DA Service
346%
226%
$1.25
$1.50
$0.28
$0.46
101%
276%
346%
614%
36%
14%
$6.00
$25.00
$1.25
$1.00
$15.31
$25.37
$2.99
$6.65
$0.28
$0.14
$11.26
$22.32
Miscellaneous Services
WirePro
Returned Check
Non Published Listing - White page & DA
Non Published - white page only
3 uSelect Package 3
Advantage Plan/The Works
CLEC Competition
CLEC UNE and Resale Lines in AT&T CA’s Service Area
2,000,000
1,800,000
1,600,000
1,400,000
1,200,000
1,000,000
AT&T California CLEC Lines
800,000
600,000
400,000
200,000
0
2002
4
2003
2004
2005
2006
2007
Residential CLECs Still Operating in California
Lowest Basic Unlimited
CLEC
Prepaid-Only? Rate
Bundle
ACN Communication Services
No
$25.94
$38.99
Asian American Association
No
$24.95
Blue Casa Communications
No
$27.99
$49.99
Budget Phone (Budget Prepay)
Yes
$49.95
Connectto
Yes
$27.99
$54.95
Curatel
Yes
$14.40*
$29.40
dPi Teleconnect
Yes
$39.99
$56.99
EarthLink
No
$49.95
$69.95
Excel Communications
No
$39.95
$59.95
MCI
No
$41.99
$59.99
Midwestern Telecommunications
Yes
$35.29
$40.29
Phoneco
Yes
$29.99
$37.98
PNG Telecommunications (Powernet Global) No
$21.99
$39.99
Sage Telecom
No
$24.99
$39.99
TC Telephone
No
$16.99
$49.99
Telscape
No
$24/$28
$47/$53
Trinsic
No
$59.68
*Price for LifeLine eligible customers. This price is roughly double the LifeLine rate available
from an ILEC.
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Cord Cutting—General Substitute or Niche Market?
NHIS Survey July-December 2008. Households With:
Both Wireless and
Landline
Landline Only
Wireless Only
59.60%
17.40%
20.20%
No Phone
1.90%
Summary of Statistical Analysis of Wireless-Only Choice
Variable
Number of Cell Phones in HH
Number of Individuals in the HH
Number Under Age 18 in the HH
Number Over Age 65 in the HH
Number in HH that need help with chores
Number in HH that have trouble walking
Number that received homecare
Number using telephone for health info
Home Ownership
Male HH Head
Hispanic HH Head
Non-white HH Head
Age of HH Head
Married Couple
Higher HH Income
Chi Square of the Regression: 6,508;
Significance Level 0.00
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**Significant at 1%.
Increases or Decreases
Chances of Wireless Only?
Increases
Decreases
Increases
Decreases
Decreases
Decreases
Decreases
Decreases
Decreases
Increases
Increases
Decreases
Decreases
Decreases
Decreases
*Significant at 5%.
Significance Level
0.00**
0.00**
0.00**
0.00**
0.09†
0.02*
0.01**
0.02*
0.00**
0.00**
0.00**
0.00**
0.00**
0.00**
0.00**
†Significant at 10%.
Telco-Cable Duopoly
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Duopoly at Best
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Duopoly Pricing: Follow the leader!
Cox Communications--only California cable operator
that offers basic telephone service as a stand-alone
option:

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Rather than establishing price for basic service based on its
costs, Cox offers basic service prices to reflect prices offered
by either AT&T or Verizon, depending on the customer’s
location.
Cox raised basic rates in response to AT&T and Verizon’s rate increases.

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Basic service rates by 25%
à la carte calling features like call waiting and three-way calling, 25% per
month for the first feature, and by 100% per month for additional features.
Increased Caller ID prices by 25% after AT&T increased its Caller ID rates.
Evidence of price leadership, where Cox follows the ILEC’s lead
on price increases, does not support the proposition that
“competition” protects consumers.
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Dominant ILECs set prices, and other firms “follow the lead.”
Regulatory Response: Fresh Look at Market
Structure is Needed

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Duopoly markets (or duopoly markets with a fringe of resalebased CLECs) are not sufficient to protect consumers.
Regulatory decisions made based on the UNE-driven
“competition” should be revisited.
Legislative regulatory plans are based on doubtful foundation.
Investigation into market performance needed.

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Evaluate remaining CLECs.
Determine where facilities-based providers are serving.
Evaluate pricing behavior.
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Price-increase triggers to initiate reviews?
Is investment occurring?
Is previous broadband “commitment” enough?
Other Regulatory “Hooks”

Price cap plan reviews.

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Evaluate plans in light of market changes.
GDP-PI Inflation.
Continued availability of capped à la carte services for the
ILEC constrains cable price increases.
Merger review.
Service quality review.
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California Competition Study Available At:

http://www.turn.org/article.php?id=839
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