Basic phone service likely to cost more

If history is a guide, then Kansas consumers who buy basic phone service should brace for substantial increases on their bills, as the Legislature moves toward removing the last price caps on AT&T's service rates.

In the other four states that once made up the Southwestern Bell system, AT&T's basic-service rates have gone up — some by as much as 86 percent — since their legislatures deregulated the company in 2006 and 2008.

On average, customers in Oklahoma, Texas, Missouri and Arkansas pay about $5 to $7 more a month for service than they did before deregulation.

The biggest dollar increase in rates is in Oklahoma, which phased in deregulation starting in 2006.

Customers there saw their basic-service rate go from $10.22 a month to $17.50, a rise of $7.28.

The largest percentage of increase came in less-populous parts of Texas, where rates have gone up from $8.15 to $15.15, an 86 percent jump, since deregulation passed there in 2006.

Following deregulation, no one's rates went down.

The smallest percentage increase was in Arkansas' larger cities, where rates rose from $17.50 a month in 2008 to $20, a 14 percent increase.

Arkansas' smaller markets got increases from 37 to 46 percent.

Cause for alarm?

AT&T spokesman Aaron Catlin said the percentage increases may look alarming, but there's no real reason for Kansans to be alarmed.

In some of the other states, he said, rates had been artificially depressed by government action for years, leading to larger percentage increases when the brakes were removed and AT&T moved to open-market prices.

"The Kansas rates ($15.70 rural and $16.70 urban) are already at that point," he said.

Agreeing is Rep. Mike Burgess, R-Topeka, a member of the House Energy and Utilities Committee who argued for deregulation of phone rates.

"They may go up, they may go down, it's hard to say for sure," he said. "I don't think they're going to dramatically increase."

Fighting the deregulation bill is Rep. Forrest Knox, R-Altoona, vice chairman of the committee.

He said he's not surprised that AT&T rates went up almost everywhere by 37 to 86 percent after deregulation. "That's less than I would have predicted," he said.

Both the staff of the Kansas Corporation Commission and the Citizens' Utility Ratepayer Board testified to House and Senate utilities committees and recommended rejecting the deregulation bill, Senate Bill 72.

A KCC staff report to the Legislature concluded that competition for phone service is not robust enough in most of the state to protect consumers and keep rates reasonable.

"In the absence of solid evidence of effective, sustainable competition ... the commission staff recommends SB 72 be rejected," KCC telecommunications chief Christine Aarnes wrote in testimony to the House and Senate committees. At present, "at least there are some protections in place should the level of competition be insufficient to discipline price."

The bill has been approved by the Senate and passed out of a House committee late last week. It is expected to go to a vote on the House floor this week.

The House committee did add some rate protection for the poorest Kansans as they worked the bill.

At the urging of Sen. Mike Petersen, R-Wichita, House members put in an amendment to shield Lifeline services from large out-of-pocket rate increases.

Lifeline is subsidized by the federal and state governments to ensure that people with incomes less than 150 percent of the poverty level can afford a phone. The current Lifeline rate is $4.43 a month.

Basic to bundled

Years ago, virtually all phone rates were set by government regulators, based largely on the phone company's cost to provide service and turn a profit.

But over the years, AT&T has chipped away at regulation and now is deregulated on all packages bundling the basic phone line with other services.

In deregulating most of AT&T's rates, the state reserved the authority to limit price increases on two classes of service — one-line, no-frills home phones and four-line, voice-only small-business service.

AT&T could raise rates, but only enough to keep pace with the Consumer Price Index.

Since that went into effect in 2006, the price of basic rural service in Kansas has stayed the same, while urban customers saw an increase of $1 a month.

The concept was to let the phone companies compete for the residential customers they really want: upscale homeowners who pay about $120 a month for bundled phone, Internet and TV service, said David Springe, chief counsel for CURB, the state agency that represents residential and small-business customers.

He said the remaining regulation on basic service was to protect mostly poor and elderly customers who just want a phone to be able to call 911 or talk to friends, and have no need for extra services such as caller ID, call waiting and conference calling.

Springe and Knox both said they think AT&T, if it's allowed to do so, will push up the rates on basic service to nearly the cost of its lower-priced bundled packages so more customers will opt to buy the bundle.

Eagle research found the cheapest bundled service package available in Wichita, which includes call waiting and caller ID, is $23 a month.

"That's exactly what these (AT&T) people want. They make more money on it," Knox said.

Catlin of AT&T said the telecommunications business is changing, with customers demanding "faster, better, more effective service."

He said the phone company can provide that better without having to go through the state regulatory process.

But as long as there are customers who want a basic phone, AT&T will provide that, he said.

"There's nothing in here (in SB 72) that makes that go away," he said. "There's no insidious plan to shove people into things they don't want."

Throughout the debate on SB 72, AT&T and its supporters have dangled the prospect that deregulation would encourage more and faster development of broadband Internet service in rural parts of the state.

While the bill does not directly reference broadband expansion, it "sets up a regulatory framework to make it attractive for that," Burgess said. "I think this is a positive statement that we're interested in that investment."

Knox said he'll believe it when he sees high-speed Internet at his home on the range. He said broadband is available in most cities, but if you live a few miles out of town, as he does, the only choices are dial-up or expensive satellite services.

"The argument seemed to be, 'We'll pass this and you'll find that broadband will deploy better,' " he said. "I see no reason to believe it will come any faster with this."

This story was originally published March 27, 2011 at 12:00 AM with the headline "Basic phone service likely to cost more."