Cox Cable decries credits for telephone rivals in LV

David Strow

Wednesday, Aug. 4, 1999 | 11:39 a.m.

MGC Communications Inc. and Sprint say they've struck a deal that will entice more companies to offer local telephone service to Southern Nevadans.

But one of Sprint's most powerful potential competitors, Cox Communications, says the deal makes it more difficult to initiate service in the valley.

The pact calls for Sprint to pay its competitors a credit of $3.65 per month for each residential line they operate in Southern Nevada. Under the deal, the maximum amount of credits Sprint would have to pay out to all competitors is $2.5 million per year.

This credit is designed to allow more companies to operate a profitable residential business in the area. Sprint estimates the deal will cost it about $6 million over the next three years.

But there's a catch. Only those competitors that lease Sprint lines that run into homes -- called "the last mile" in regulatory parlance -- are eligible to receive the credit. MGC is currently the only company using those lines to offer a competing service.

That raised the ire of Cox. Cox wants to offer local phone service in the valley, but isn't going to be using Sprint lines at all. Instead, it would offer telephone service through the cable lines that run into most local homes.

The settlement came as part of a deal put together by Sprint, MGC and the Nevada Bureau of Consumer Protection. That deal was approved last week by the Public Utilities Commission of Nevada. The pact resulted in MGC dismissing a federal antitrust lawsuit against Sprint it filed in February.

Sprint also received approval to raise telephone rates $1.95 a month, which will result in $23 million in additional annual revenues. Residential phone rates rose from $7.10 to $9.05, a 27.5 percent increase, while business rates went from $16.30 to $18.25 a month, a 12 percent increase. Each customer is eligible to receive a one-time credit of $30.60 to offset the increases.

The Sprint incentive will provide MGC with about $1.1 million in additional revenue annually, MGC said. The agreement will expire in June 2002.

The Regulatory Operations Staff of the PUCN said MGC could have made a 6.4 percent profit margin if it offered telephone access at $8 per month, a rate that the staff found "insufficient for any competitor to compete effectively." (MGC currently offers a basic residential line for $6.85 per month.)

The extra credit, the staff said, would make residential service an attractive offering for MGC or any other competitor.

"This incentive will make it more economical for MGC and other (Sprint competitors) to compete in the residential marketplace and is an important milestone toward leveling the playing field," Nield Montgomery, president and chief executive of MGC, said.

But Cox argued the incentive made the playing field more uneven, as far as it was concerned. Cox believed the credit gave a pricing advantage to companies that use Sprint facilities, while penalizing companies that offer service entirely with their own facilities.

Cox also argues that Sprint pushes down its residential rates by subsidizing them with other services, making it difficult to match those prices. As a result, Cox believes it will be difficult to compete effectively with Sprint or MGC on price.

"Subsidies like this don't benefit the competitive marketplace, or true competitive providers," Steve Schorr, a vice president with Cox in Las Vegas, said. "We object to this in that it discriminates against carriers like Cox ... it puts us at a competitive disadvantage to other competitors."

What Cox wants to offer is a package of telephone service, cable television and fast Internet access, all through a single cable line. All three services could be used simultaneously. Cox would need to invest tens of millions to upgrade its local network to make it capable of offering reliable telephone connections.

Cox currently offers cable and fast Internet here, but not telephone service. It is offering telephone service in Orange County, Calif., and San Diego, Schorr said.

Cox still has definite plans to offer the service in Las Vegas as well, Schorr said, but the new credit makes the timing uncertain. While examining which markets to introduce telephone service in, Cox may decide to first invest capital in markets that don't have such barriers, Schorr said.

But he added, "we don't want to have to wait until 2002 to offer telephone service in Southern Nevada."

In testimony before the PUCN, Cox couldn't say when it would offer phone service in Nevada. Nor could it provide projections of how much financial damage Cox would suffer from the credit. As a result, the PUCN rejected Cox's objection.

The Greenspun family, owner of the Las Vegas Sun, is a minority investor in Cox's Las Vegas system. The family sold its majority interest to Atlanta-based Cox last year.

Sprint spokesman Rob McCoy noted that his company did not promote the credit, but agreed to it as part of an overall settlement.

"But Cox should not be eligible (because) cable rates can be used to subsidize potential entry into the telephone market," McCoy said. "MGC has to go to the outside market to get the necessary capital. There's a big difference."