The End of Carrier-of-Last Resort

Black phoneThe Louisiana Public Service Commission granted AT&T relief from carrier-of-last resort obligations on November 13 in Docket R-31889. This docket also allows AT&T to stop calculating price floors. Similar changes have been ordered in other states and AT&T has been asking for this everywhere they are regulated.

What might this change mean to the average consumer? Just sitting here I can picture a number of possible ways that AT&T can use this ruling:

  • They are no longer obligated to connect a new home to the copper network. In the past as carrier-of-last resort they were required to connect everybody within reason. And that meant everybody within some defined distance from the network. They were not required to connect people at the top of a mountain if their neighbors didn’t already have service, although they were required to offer for that mountaintop home to pay for the construction to reach the network. But AT&T can now say no to any new home and can instead tell a customer they only offer wireless service or no service at all.
  • AT&T could insist that every new home pay the cost of connecting to the network, and anybody who has ever seen such estimates knows they are heavily loaded with overheads and are very expensive.
  • AT&T could refuse to reconnect customers to the network. If somebody gets disconnected for late payment or puts their service on hold to go on vacation they could be told that they are not allowed to connect back to copper. Again, they could be told their only alternative is wireless or nothing at all.
  • This doesn’t yet give AT&T the ability to kick paying customers off the network, but they have already told the FCC that they want that authority in order to convert millions of lines from copper to wireless.

There are customers for whom this change might really matter. Certainly anybody who has several competitive alternatives is not going to care too much, but there are still millions of customers without alternatives. There are still many rural customers for whom a copper landline is still the only physical communications wire connected to their home. If they lose that, then satellite or wireless Internet become their only option, and many rural areas have really lousy cell phone / data coverage. It also matters because if AT&T is successful in converting people from copper to wireless the cost to customers will go way up. Cell phones cost a lot more than landlines and cellular data costs more than DSL and also has very severe caps.

The second provision of this ruling is just as disturbing. By getting rid of price floors AT&T has been given the permission to cut prices below costs. That might sound beneficial to consumers but it generally is not in the long run. Done in an extreme way, cutting prices below costs would be considered as predatory pricing. Unfortunately in this industry there is no reliable legal or regulatory definition of predatory pricing, and so any competitor claiming it would face a huge uphill battle to first define what predatory pricing means.

The ability to price below costs means that AT&T could engage in a price war in a market with competition and make up the profits from the surrounding markets. The consumers in the competitive market might benefit for a while, but AT&T’s goal with a price floor would be to put the competitor out of business.

Don’t think this doesn’t happen. In Monticello Minnesota the city built a fiber network to bring fast Internet to the City and to lower what looked to be the most expensive phone rates in the country. The incumbent provider in that City is TDS, a mid-sized telephone holding company. TDS, and then Charter Cable both responded to the City’s competition by offering special incentive packages that are half of their former price. When a telephone or cable company cuts prices in half they are either engaging in predatory pricing or they were making obscene profits before the price cuts. In Monticello I think that there was some of both going on.

In the long run the Louisiana Commission has given AT&T more tools to hurt customers and to stifle competition. AT&T certainly made the request for this change sound benign, but in the end it is really hard for a company of their size to not take advantages of the new rights they have been granted. It will be interesting to see what the LPSC does when they get complaints from customers and competitors who are harmed due to this ruling.

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