Sprint and T-Mobile see opportunity under Obama

WASHINGTON Wed Dec 17, 2008 1:46pm EST

A Sprint logo with a Manhattan skyline reflected in the window on the front door of the Sprint store on New York City's West 42nd street December 13, 2004. REUTERS/Mike Segar

A Sprint logo with a Manhattan skyline reflected in the window on the front door of the Sprint store on New York City's West 42nd street December 13, 2004.

Credit: Reuters/Mike Segar

WASHINGTON (Reuters) - Sprint Nextel Corp (S.N), T-Mobile TMOG.UL and other wireless companies are hoping the Obama administration will take steps to boost competition and put them on more even footing with industry giants AT&T (T.N) and Verizon Communications (VZ.N).

A bid to revamp policies on access to the telephone lines that route phone and Internet service has stalled under Republican rule at the U.S. Federal Communications Commission. Critics say the agency has favored incumbent carriers AT&T and Verizon, which are also the remnants of the old Bell phone company monopoly that existed until 1984.

After a wireless call connects to a cell tower via a radio signal, it eventually must go through a physical phone line. To route traffic to customers, wireless companies often have to pay the major carriers to use these so-called special access lines.

Sprint, T-Mobile, a unit of Deutsche Telekom AG (DTEGn.DE), and others contend that incumbent control of the vast majority of this market, combined with deregulation of FCC rules on competition, is keeping prices artificially high.

"The FCC has largely deregulated the pricing in big metro markets," said analyst Paul Glenchur of Stanford Washington Research Group. "I think there could well be action."

Sprint, the third-biggest U.S. mobile phone company, says it spends one-third of the operating costs for its 60,000 cell sites to use the special access lines.

"The new administration must act to repair the broken special access market," Chief Executive Dan Hesse told a Washington audience recently. "The prices are well above economic costs."

Competition exists in as few as 6 percent and at most 24 percent of buildings seeking access to these lines, according to a 2006 report from the Government Accountability Office, a congressional watchdog agency.

The market for such lines is a rising segment of the telecommunications market, representing $16 billion in revenue for the major providers of these services in 2005, the report says.

AT&T contends competition is robust in the market, pointing to average price declines for the lines. It cites the GAO report that "list prices and average revenues" have declined since 2001.

But in the next sentence, that same report notes that prices are rising in certain markets, including those where the FCC has given pricing flexibility to the big players.

AT&T has also noted that carriers with large volumes, such as Sprint, qualify for the highest discounts.

FOOD FIGHT OVER DATA

"It's a big food fight in terms of the actual data," Stifel Nicolaus regulatory analyst David Kaut said. "All sides of the industry are working off different numbers."

A proposal that has been stalled at the FCC would toughen the standards used to gauge competition among the incumbents. Until now it has been deadlocked, with two Democratic commissioners backing reform.

"Clearly the Bell critics are going to push the FCC under the Democrats to look at it," Kaut said, "and there is a fair chance the agency will do something."

Reforms could range from ordering price caps to resetting the metrics that allow the Bell companies to get pricing flexibility, Kaut said.

While Sprint looks at the issue from its business customer base, T-Mobile contends that in some residential buildings, it has no choice but to go through an incumbent's lines to get access.

To be sure, there will be competing demands for the FCC's time, the most pressing of which is the transition to digital television early next year.

But telephone line reform also has the backing of some big businesses that pay for access to meet their high-volume data needs.

"It is the nervous system for business; everybody buys some of it," said Colleen Boothby, an attorney who represents a group of Fortune 500 companies known as the Ad Hoc Telecommunications Users Committee.

To emphasize the importance of special access lines to big corporations, Boothby said: "We're a bunch of businesses who are willing to go to a regulatory agency and say: 'Would you please regulate?'"

(Editing by Lisa Von Ahn)

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