Cellular carriers in California have asked the Federal Communications Commission to reject a petition filed by the California Public Utilities Commission that asks for continued state regulation of cellular rates.

The FCC planned to take control of rate regulation from states Aug. 10 under authority of the 1993 Omnibus Reconciliation Budget Act. But the same act allows states that believe market conditions in their states do not adequately protect subscribers from unreasonable rates to petition the FCC for continued control.

In an Aug. 3 decision, the CPUC said it found cellular prices were still too high despite its urging the industry to reduce rates. It followed with an FCC petition Aug. 9, asking to retain control for about 18 months until it completes a rates and services study.

In addition to California, seven other states filed similar petitions: Arizona, Connecticut, Hawaii, Louisiana, New York, Ohio and Wyoming.

Comments filed at the FCC last month on the California petition indicated overwhelming opposition to the CPUC from cellular carriers, which argued the CPUC’s reasoning and methodology used in the petition are not sound, that its use of rate-of-return regulation for analysis is misplaced and that the market is, in fact, competitive and thus ready for less regulation.

“The petition does not establish that competition within California wireless markets is insufficient to protect subscribers,” according to comments filed by AirTouch Communications. “To the contrary, California’s wireless markets are more competitive than other states.” AirTouch points to the entrance of Nextel Communications Inc. into the market and the imminent entry into personal communications by Pacific Bell and Cox Enterprises.

AirTouch blames the CPUC for high rates in California. Subscribers have paid $250 million more per year with the CPUC’s regulation, and the CPUC’s request for “continued and augmented regulation” over rates will cost consumers $500 million more during the proposed 18-month period.

“The CPUC’s regulation, the heaviest in the nation, has denied consumers the benefits of unfettered price competition,” said AirTouch.

McCaw Cellular Communications Inc. called the CPUC’s economic analysis used in the petition “fundamentally flawed.” Not only does the CPUC not recognize coming competition, but it ignores declining prices for cellular service, uses incorrect analytical tools in trying to prove market concentration, concludes erroneously that cellular systems have excess capacity and fails to recognize the scarcity value of spectrum in saying that carriers have enjoyed excess earnings.

McCaw also stated the CPUC should not claim that the number of cellular resellers is indicative of the level of competition in the cellular marketplace. McCaw asserts that number is not linked to ensuring reasonable rates. And there is no evidence that facilities-based carriers are pricing wholesale service in a discriminatory manner, the carrier said.

GTE Service Corp. contended that in evaluating competition in California, the CPUC does not acknowledge paging and specialized mobile radio services as alternatives for meeting mobile telecommunications needs.

“The petition unrealistically rejects all other services currently offered as substitutes for cellular services, apparently requiring that services be perfect substitutes for cellular service in order to have any competitive impact,” according to GTE. “This narrow view simply does not reflect reality.”

GTE also said using rate-of-return regulation for analysis in the petition was inappropriate, pointing out the FCC has previously declined using such regulation for wireless services and that the CPUC itself has rejected cost-based regulation of cellular rates.

The Cellular Carriers Association of California took a different tactic in its opposition. The petition should be rejected, the group said, because the CPUC’s inclusion of confidential material, from its ongoing rates investigation, is in violation of the CPUC’s own general order. In addition, the information was obtained from the California attorney general in violation of California law.

And because the CPUC used confidential information to support its arguments, it had to file the petition under seal, releasing a version to the public that was “bare bones,” said the association. So commenting parties thus could not adequately respond.

Besides, said the group, if the FCC relied on nonpublic information to make a decision favorable to the CPUC, the decision could be overturned on review as “an arbitrary and capricious agency action.”

Resellers Cellular Service Inc. and ComTech Inc. as well as the Cellular Resellers Association Inc. filed a joint set of comments supporting the petition, saying sufficient market competition does not exist to ensure reasonable rates for subscribers.

“To date, CRA’s members, including CSI and ComTech, have provided the only meaningful competition to the FCC-licensed cellular carriers,” stated CRA. “However, as demonstrated in the petition, that additional competition has proven insufficient to overcome the market power of the FCC-licensed cellular carriers.”

CRA said it is concerned that without CPUC oversight, the cellular carriers would immediately eliminate availability of wholesale rates.

David Nelson, president of CRA as well as chief executive officer and vice president of CSI, said he hopes the FCC will agree to extend state-controlled regulation until the market is competitive or until resellers have their own switches in place.

The Cellular Telecommunications Industry Association opposed the California petition, as well as those filed by the other seven states, saying all failed to meet the requisite burden of proof or offer pertinent evidence of market conditions.

Dianne Hammer is a freelance telecommunications writer based in Denver, Colo.


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