AT&T Corp. announced yesterday that it has stopped selling local and long-distance service to new customers in seven states, anticipating higher costs it says will result from the Bush administration's decision not to appeal a court ruling striking down rules designed to promote competition in the telecommunications industry.
Phone customers in Arkansas, Louisiana, Missouri, New Hampshire, Ohio, Tennessee and Washington state were ineligible for new accounts with AT&T as of yesterday.
The company also downshifted revenue expectations for the year, pinning the change on the loss of ability to attract new customers in those states. AT&T expects company revenue for 2004 to be between $29.5 billion and $30.5 billion, down from the previously forecast range of $31.1 billion to $32.1 billion.
The long-distance telephone service carrier's move is the latest upshot of a long-running battle between regional phone companies, such as Verizon Communications Inc., and long-distance carriers. To promote competition, the Federal Communications Commission once mandated that regional phone companies give long-distance carriers deeply discounted, wholesale rates for access to the expensive-to-build local networks. The U.S. Court of Appeals for the D.C. Circuit vacated the terms of that mandate in March.
AT&T, WorldCom Inc. and other long-distance companies lobbied for taking the case to the Supreme Court, but the Federal Communications Commission and the White House declined to sponsor an appeal. The Supreme Court later turned down industry requests that it take the case.
Commissioner Michael J. Copps at the FCC criticized his agency for not taking the issue to the Supreme Court. "It's Armageddon for competition, and we'd better come to our senses quickly or the competitors will be gone," he said in a statement.
Critics yesterday accused AT&T of trying to apply political leverage to the conflict by choosing to phase out service in states that could be influential in the upcoming presidential election.
At regional carrier SBC Communications Inc., spokesman Dave Pacholczyk called the move "a cheap PR stunt." Walter B. McCormick Jr., president and chief executive of the U.S. Telecom Association, said in a statement that the move "appears to be a political statement directed at presidential battleground states, rather than a real business announcement."
AT&T denied the charge that it is playing politics.
"The states that we have identified today are the states where we were already losing money" or just breaking even, said the company's vice president of federal regulatory affairs, Robert Quinn.
Mark Cooper, director of research at the Consumer Federation of America, said AT&T's move is "part of a political game that's been going on for three months -- but the politics shouldn't obscure the fundamental economic questions." Cooper calculates that companies such as AT&T would not be able to afford to continue doing business if local phone companies were to raise their rates.
Though the long-distance carriers lost their battle to take the case to the Supreme Court, this conflict isn't over. Though the old rules establishing the discounted rate for network access have been nullified, the FCC has yet to establish new rules -- or even interim rules -- dictating how the transition will take place.
James L. Lewis, senior vice president of policy and planning at MCI Inc., called the lack of such rules "an invitation to the Bells to cause havoc in the industry." Lewis's company has, in public statements, held out the possibility that it will raise prices or drop out of markets if the cost of access rises.
Meanwhile, Quinn at AT&T indicated that his company may decide to back off on service in other states, in addition to the seven named yesterday.
"I have a feeling that this is going to be a fairly regular announcement," he said.