Bells Face the Music on Pricing Rules

The Baby Bells seek to gain back lost ground this week when regulators issue final telecom pricing rules, though some investors aren't holding their breath.

The big local phone companies endured a sharp selloff in February when the Federal Communications Commission issued a largely negative preliminary decision. Wall Street's discontent centered on what's known as mandatory discounting on voice lines. That's a practice that forces Verizon (VZ), SBC (SBC), BellSouth (BLS) and Qwest (Q) to offer discounts to phone-service rivals.

Now, the FCC is expected to issue final comments, ending months of market speculation over the direction of give-and-take at the bitterly divided agency. Baby Bell shareholders are crossing their fingers for a softening in the language of the agency's Feb. 20 preliminary order.

Still, most observers doubt the new ruling will ease the Bells' pain, what with their core businesses still reeling. And barring a complete rewrite, the agency's latest remarks are expected to trigger a whole new round of lawsuits and appeals from the industry.

Competition

Observers expect that this week's order will formalize the decision to hand wholesale pricing jurisdiction to the states, with a stipulation to phase out mandatory discounts altogether in three years. The discounts were designed to promote local phone competition, by forcing the Bells to rent their networks to rivals who, in turn, resell the service. But the Bells say the resale prices mean red ink to them.

The rules date back to the Telecom Act of 1996, a nebulous body of guidelines intended to foster phone industry competition. Going into the FCC's triennial review of local competition laws issued in February, many observers had expected to see some of the wholesale pricing laws rolled back, to the benefit of the regional Bells. But in a 3-to-2 vote, the agency let the rules stand and handed off the matter to the states.