Bell Battle Could Get Ugly for Bush

But an AT&T representative said that if the company sees a problem, it is prepared to make a quick decision. "If we think six months from now we will lose customers because we have to raise rates, it changes things and we will have to make some hard choices."

MCI, which has plans to cut more than 11,000 jobs this year, declined to comment on any additional firing plans. A company representative said "it puts considerable pressure on our consumer business and we will be looking at raising rates and pulling out of certain markets."

Curiously, the Bells, in an apparent concession to the Bush administration, promised not to raise discount rates this year, eliminating any reason for competitors to cry foul before the election.

The gamesmanship irks some MCI and AT&T fans, who charge that the Bells deftly won favor from the White House by pushing any consumer price increases safely into the next year.

A Verizon representative said it was not a favor swap. "We said we were not raising rates because we hope to negotiate rates with wholesalers," the rep said.

But some analysts say that while MCI and its ilk were dealt a setback this week, any attempt to embarrass the Bush administration could prove to be counterproductive.

"Creating embarrassment for the White House would not change any of the decisions in the near term," says Legg Mason analyst Mike Balhoff, who has a hold rating on the Bells and no rating on MCI or AT&T. (Legg Mason has no underwriting ties to the Bells.)

Balhoff says it is likely that the new rules from the FCC will give AT&T and MCI discounts less steep than the today's 50% rate, which of course is an improvement for the Bells and better than no discount for the rivals.

He also expects the discounts will be phased out over a three-year period. This will likely give Bell competitors time to work on alternative calling strategies like voice over Internet protocol.

"This is a long, extended, competitive fight," says Balhoff. "It is important that the players not overreact at this moment in history."

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