Thursday, April 18, 2002 | 10:55 a.m.
Four telecommunications companies, including one that competes with dominant local telephone provider Sprint Corp., have filed testimony with Nevada regulators commenting on Sprint's proposed $90 million rate increase.
Mpower Communications Corp., a distant No. 2 to Sprint in market share in local residential phone service in Southern Nevada, called on the Public Utilities Commission of Nevada to establish rates for Sprint that allow it to recover its expenses.
Pittsford, N.Y.-based Mpower, formerly known as MGC Communications Inc., filed for Chapter 11 bankruptcy protection earlier this month.
Cox Nevada Telcom LLC, a subsidiary of Cox Communications Inc., the largest cable television provider in Las Vegas, also weighed in on Sprint's proposed 76 percent rate increase. The plan would raise the basic residential phone rate from $9.05 to $15.95 a month and the basic business rate from $18.25 to $22.95 a month.
Cox, a subsidiary of communications giant Cox Communications Inc., Atlanta, does not compete in the telephone industry in Southern Nevada, but does have customers that use its broadband cable network for Internet access. Cox's sister companies in California and Arizona provide local phone service in those states.
The Greenspun family, owner of the Las Vegas Sun, holds a minority stake in the local Cox Communications operation.
Two other telecommunications companies, Pac-West Telecom Inc., Stockton, Calif., and WorldCom Inc., Austin, Texas, also filed testimony in the rate case, which will be heard by the PUC beginning May 13. Those companies encouraged the PUC to reject Sprint's proposal to increase interstate access rates.
Under state rate-setting regulations, utility competitors are entitled to comment in rate cases as intervenors.
The four companies submitted their comments to the PUC late Monday at around the same time the state's PUC staff and the state Bureau of Consumer Protection filed their own comments on the proposed rate increase, which would take effect July 1 if approved by the three-member PUC board.
Consumer Advocate Tim Hay recommended that Sprint's entire rate increase be rejected, while the PUC staff recommended reducing the increase to $24.7 million, which would result in a monthly increase of $1.05 on residential phone bills.
The four telecommunications companies individually raised issues that were addressed collectively by Hay and the PUC staff. The companies did not argue about the amount of Sprint's rates, only its methods of recovering those rates from customers and how that would affect their own operations.
S. Gregory Clevenger, executive vice president and chief strategy and planning officer for Mpower, said because Sprint's local rates are subsidized by other revenue sources -- like Yellow Pages advertising revenue and services like Call Waiting and Caller ID -- it's difficult for Mpower to compete in the Las Vegas market.
"In order to compete in a market, Mpower has always felt it necessary to price slightly below the incumbent in order to attract business," Clevenger said in his testimony submitted to the PUC. "It has, however, become impossible for Mpower to compete on this basis in some markets. Las Vegas is one of those markets. If Mpower charged 10 percent less than Sprint, as it typically has done, it could not even cover its out-of-pocket expenses for the (phone lines). There would be nothing to cover its other out-of-pocket costs or its overhead, let alone make a profit."
Clevenger said as a result, Mpower has had to raise its prices.
"Now that Mpower has modified its charges for new residential customers to reflect actual costs plus a reasonable profit, there is no longer any rate competition in Las Vegas and over a period of time, the customers undoubtedly will go back to Sprint," Clevenger said. "Further, Mpower has now given notice that, effective May 1, it will raise its rates for current as well as new residential customers. Many customers will likely go back to Sprint fairly quickly."
Mpower clarified today that it will modify its rates, which will increase costs for many of its customers and lower it for others beginning May 15.
The current residential rates, which range from $15 to $30 a month, will change to $28 month and include additional features. For businesses, a $17-a-month standard line charge will increase to $23 a month and include additional services.
A company spokesman explained that Mpower is consolidating its package offerings to provide what most customers already get in a package. About one-third of the company's customers will see increases.
The company has about 28,000 residential and 35,000 business lines in service.
Mpower recommended to commissioners that Sprint receive residential and business rate increases "which at least covers its costs, plus a reasonable profit."
Issues regarding unfair competition have been at the root of at least two lawsuits filed by Mpower and its predecessor company against Sprint.
Cox concurred that Sprint's local rates don't match their expenses, but it urged the PUC to avoid overmanaging local telephone competition.
Jose Manuel Jimenez, director of state regulatory affairs for the western region of Cox, said he believes Sprint has recommended a proportionately greater increase of residential rates to business rates because residential rates are further below cost than business rates, Sprint's current residential rates are among the lowest in the nation, Sprint faces greater competition for business services and there's greater demand for a variety of business services.
He rejected Sprint's claim that fierce competition in Las Vegas justifies the proposed rate increase.
"Any cursory review of headlines ... over the past 18 months reveals that the (local telephone) industry has undergone significant attrition in numbers, as many of them have failed in their attempt to provide an alternative to incumbent phone companies," Jimenez said. "Their names read like a who's who of potential competitors in the period after the 1996 Telecommunications Act became law."
Jimenez cited actual and potential bankruptcy filings by Mpower and XO Communications, a Sprint competitor for business phone service in Las Vegas.
"Cox has yet to enter the market for switched telephone service in Las Vegas and has made only small inroads into more advanced business telecommunications services," Jimenez said. "Clearly, the level of competition Congress hoped to see six years after the (Telecommunications) Act was signed has not fully materialized."
He encouraged the PUC to "set rates based on the reality of competition instead of what might have been or how many (companies) have obtained certificates to provide" phone service in Las Vegas.
Pac-West and WorldCom testified that commissioners should not allow Sprint to raise rates on access to interstate services, echoing concerns by both Hay and the PUC staff.
A spokeswoman for Sprint in Las Vegas said because the telecommunications companies echoed several points raised by Sprint in its rate request that the company is not dissatisfied with all the testimony. Sprint is, however, disappointed with the outlooks by Hay and the PUC staff.
"Generally, we're pleased with their testimony," spokeswoman Detra Page said of the four companies' remarks. "A lot of what they said in their testimony supports Sprint's position that pricing is not covering the cost of providing service to our customers.
"But we are disappointed with the testimony provided (by Hay and the PUC staff)," she said. "But we still feel like we have a pretty strong case and we look forward to presenting it in the May 13 hearings."
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