Qwest files for phone rate deregulation

Qwest is at it again. Unsuccessful in attempts to move through a plan to deregulate rates (and therefore raise them) for basic phone service on the Governor’s Telecommunications Task Force of 2006, and in the Oregon Legislative Session of 2007 (note earlier mention of SB 2621), Qwest has now filed a case with the Public Utility Commission trying to do the same thing. We’ve looked it over, and it isn’t pretty.

Qwest has filed a case with the PUC asking to raise the rate of basic local phone service and erase the price caps on many other additional phone services, as well. Their argument about needing more revenue lacks strength since basic telephone service is a declining cost industry, and has been for several years. Also, although Qwest may have been prohibited from raising their prices for most local services for several years, customers have seen increases on their phone bills, due to the FCC moving more of the costs of the national phone network onto subscribers’ local phone service bills.

Qwest’s filing would allow them to opt out of their current system of price cap regulation, which they chose out of a range of possible options in 1999, when Senate Bill 622 created the model of price cap regulation for Oregon under which Qwest has been operating. There was an assumption by those involved in the passage of SB 622 that the price cap regulation was a fairly permanent status change, and that only another legislative change would allow a change in that status.

Other options include traditional rate regulation based on the utility’s rate of return (generally utilities earn about 10% above their rate of investment; this is the regulation PGE and PacifiCorp operate under); complete deregulation of services, dependent on the utility proving to the Commission that sufficient competition in providing those services exists to ensure a fair market; and an alternative form of regulation, which allows the PUC to set prices without regard to rate of return on investment.  Whether Qwest can legally opt out of their current price cap regulation is a primary issue, as far as CUB is concerned.

Qwest is seeking price deregulation under a statute that allows the Commission to set prices without examining a utility’s profit. A fundamental question, however, is whether this is legal. The Commission uses its regulatory power to set prices; can it use the same power to deregulate and not set prices? We are skeptical.

What is at stake is, of course, a great deal of customer money, and while the burden of increased rates would fall on every one of Qwest’s customers, those hardest hit would be those with the least income who have only a single basic phone line. Those customers would see a $2/month increase sometime in the first 4 years, and then unlimited increases after that. All other phone services would be immediately eligible for unspecified (and uncapped) levels of price increase, including directory assistance, caller id, call waiting, unlisted numbers, and other optional phone services. (Voice mail service has been deregulated for some time and DSL service has never yet been regulated.) So, just for starters, Qwest could earn an extra $2 million per month on basic phone service, with greater increases from these additional phone services, and any increases they add to basic after the 4-year period is up.

What they have offered in return is a $1 million investment in network infrastructure in places that might not have been cost-effective (they say) to build in. And up to an additional $1 million for high speed connections for Oregon K-12 schools—no base level of investment is guaranteed. We don’t mean to be uncharitable ourselves, but do want to point out that a very small surcharge of less than 10 cents per month on existing basic service phone lines in Oregon for one year would give the same million dollars for schools, while Qwest would be pocketing at least an extra $1.9 million per month (or $1.90 per month per line) forever! When they were negotiating SB 622 eight years ago Qwest offered $120 million in network investments; it seems to us their negotiation offers have slipped somewhat.

One of the rationales Qwest gives for the attempt to raise local service rates is that they are subject to competition. We aren’t disputing the increased competition in the telecomm world. But most of the competition comes from wireless phone services, which offers an increase in portability and convenience, which this filing doesn’t address; and from the bundling of basic phone services with options such as cable television and internet, DSL, or wireless together on one bill (Qwest’s main competitor in these fields is Comcast), and Qwest is quite capable of competitive bundling without this filing.

We’re not impressed with the arguments put forth in Qwest’s filing and we’re not impressed with their going over well-traveled ground either, repackaging previous failed efforts to deregulate prices. But Qwest has successfully pursued this kind of rate deregulation in other states, and so CUB will file a response that attempts to keep Qwest’s hand out of the proverbial cookie jar, once again.

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