The decision by the California Public Utilities Commission to allow bundling of cellular telephones gives the commission a card to play as it seeks permission from the Federal Communications Commission to maintain control of cellular rates.
“It is one way we can show that California is trying to make the cellular industry more competitive,” said CPUC senior attorney Ellen LeVine.
Last August, the federal government was prepared to take from all states the responsibility of regulating intrastate cellular rates. This pre-emption of power was a last-minute provision squeezed into Congress’ 1993 Budget Act, LeVine said.
“There isn’t adequate competition here and the FCC isn’t equipped to know. We’re close to the markets and can see if rates are reasonable,” she said. The CPUC maintains that California’s rates are higher than average.
California and seven other states petitioned the FCC to postpone the pre-emption; CPUC asked to continue regulating until March of 1996. An FCC response still is pending, but meanwhile the CPUC has not been idle.
When the commission approved bundling cellular phones with specific service providers on April 5, it reversed a long-standing ban in the cellular retail market. Previously, the commission concluded that giving customers special rates on products, such as cellular phones, only if they bought tariffed products, such as service installation, added up to an indirect discount on tariffed products. The about-face was done to stimulate competition and reduce the cost of cellular usage, the commission said.
Under the new bundling decision, cellular wholesalers, resellers and retail stores that wish to bundle still must meet three conditions-the customer must be offered the option of voluntarily accepting the bundled equipment or of buying only the cellular service; cellular service can be offered only if it is tariffed but bundled equipment would have no such restriction; and retail stores must abide by California and federal consumer protection and below-cost pricing laws.
The new decision states that bundling service and equipment is legal as long as the utility adheres to the tariffed rates and charges so the price of the tariffed product is not directly or indirectly changed. This decision also allows bundling by retailers as long as the price of cellular service set by tariff isn’t changed, directly or otherwise.
The move was praised by the Cellular Carriers Association of California. “This is a pro-consumer decision and an important step in lowering the price of cellular phones to the average user,” said Stephen Carlson, CCAC executive director.
It got a thumbs down from the California Resellers Association. “The old system was fairer to customers, said David Nelson, CRA president.
To give something to the resellers, the commission recently authorized a resellers switch proposal. It allows resellers to hook up their own switch to facilities-based cellular operations and unbundles access rates from airtime rates.
A trial of the resellers’ switch is scheduled to take place in coming months between a reseller and Los Angeles Cellular Telephone Co., LeVine said. “It’s been difficult for resellers to compete on price because they still had to pay interconnection. We hope now they will be able to compete on a price basis. Then we will have yet another provider, if it’s only an interim measure.”
The switch provision can put resellers into the playing field until new personal communication services players enter the market. Pacific Telesis paid nearly $700 million for PCS licenses covering southern and northern California. The Sprint Corp.-cable consortium bought the San Francisco license for $206.5 million. PCS systems are expected initially to be cellular-like, providing current cellular operators with direct competition.
When that happens, the CPUC would gladly step away from regulating, LeVine said.
“There isn’t adequate competition here and the FCC isn’t equipped to know.”