LECs Squeeze Competition

Control of Billing Used To Dominate Ancillary Service Providers

The LECs are zealously guarding the province of ancillary services such as voice mail, directory assistance and caller ID, because the margins they generate are so high, particularly in the residential market. Recent actions by LECs demonstrate the methods they are using to drive competitors off the bill, including closing bills to competitors who provide ancillary services, as well as using anti-cramming initiatives as a guise to eliminate competitors and monopolize the market for ancillary services. All the while, they continue to use their bill as the vehicle for their own ancillary services.

In an obvious attempt to dominate the ancillary services market, at least one regional Bell operating company (RBOC) has announced it will close consumers' local bills to third-party providers of ancillary services. Consumers preferring a single bill will have but one place to go: the incumbent. The result will be that consumers will be less likely to order competitive products that are billed through separate bills. Clearly, the RBOC has recognized the competitive advantage inherent in using the local bill for ancillary services.

An industry-wide initiative to protect consumers from cramming has become another weapon in the LEC arsenal to fend off competition. Last summer, the Federal Communications Commission (FCC) worked with all sectors of the industry to establish guidelines to protect consumers from "cramming"--the unauthorized addition of charges to consumer phone bills. Certain LECs, however, have twisted this positive, pro-consumer effort into a negative, anti-competitive effort to drive competitors out of the market for ancillary services. Accordingly, and in the name of good corporate citizenship, certain RBOCs have instituted moratoriums on new third-party billing on the local bill and have imposed near-zero complaint thresholds on competitors. These policies provide that competitors can be forever denied a place on the local bill for receiving even a small number of complaints. But these policies do not apply to comparable services supplied by the LECs themselves. One RBOC refused to bill for an Internet access service on the grounds it could exceed a certain cost, but it did not apply this limit to its own Internet access service, which also can exceed that cost. Another refused to bill for competitors' caller ID boxes, claiming that a policy prohibits them from billing "products." This policy did not stop them from using the local bill for their own competing equipment. So, from the perspective of the LEC, we have the best of all gifts to telecom humanity: a self-serving, anti-competitive package dolled up in pro-consumer wrapping paper.

LECs are engaging in these punitive, unilateral actions against competitors even while they make plans to offer long distance and already are offering a wide variety of ancillary services in competition with non-LEC members of the telecommunications industry. In this environment, the threat of competitors being denied access to the local telephone bill is very real. Such an outcome would be highly dangerous for competition and for consumers if it were to continue.

Ernest B. Kelly is president of the Telecommunications Resellers Association (TRA). He can be reached at (202) 835-9898.

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