AT&T, Verizon Pricing Policies Under Attack

Sprint's CEO says the FCC's deregulatory approach unfairly favors AT&T and Verizon and is a textbook example of market failure.

WASHINGTON—Gary Forsee, CEO and President of Sprint Nextel, told lawmakers on Oct. 2 that a competitive, high-volume business telecommunications market is unfairly rigged to favor AT&T and Verizon. As a result, Forsee said, the nationwide rollout of broadband is faltering.

Wholesale availability—known as special access—to the nations two largest carriers networks is a critical component of virtually every competitor to AT&T and Verizon. Access to these dedicated circuits allow competitors to connect their networks and reach their customers.

"Despite this central role in telecommunications and broadband deployment, the special access market is a failure," Forsee told the U.S. House Subcommittee on Telecommunications and the Internet. "[The failure] is apparent in the overwhelming and increasing market share of the two dominant special access providers, AT&T and Verizon."

Forsee noted that incumbents controlled 92.7 percent of the special access market in 2001. By 2005, he said, that share had grown to 94.1 percent.

Forsee and others complain that the merger mania that saw AT&T acquire SBC and Verizon buy MCI have reduced the choices for wholesale access. "The special access market is a textbook example of market failure, and consumers are suffering the consequences of this failure," Forsee said. "The future of competition in telecommunications hinges on whether we address the special access market failure."


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Regulation of the prices incumbent carriers could charge competitors was once the hallmark of U.S. telecommunications policy, but under Republican control of Congress and the Federal Communications Commission, deregulation became the standard. Forsee and others want the FCC to continue to regulate, or at least cap, the prices AT&T and Verizon can charge competitors for access to their networks.

"The FCC has the tools, the evidentiary record and the Congressionally mandated obligation to ensure that special access prices are just and reasonable," Forsee said. "I urge this subcommittee to let the FCC know that it must meet its obligation by reducing special access rates to reasonable levels."

Subcommittee Chairman Rep. Ed Markey noted a General Accountability Office study that found the FCCs deregulatory policies have resulted in higher special access prices and limited competitive choice.

"Because prices today are higher than what a truly competitive market would support, current and future wireless providers will expend funds on special access that would be better spent reducing prices to consumers or deploying more and better broadband facilities," Markey said.

"Unless this market failure is corrected, special access could have a negative impact on all wireless broadband deployment, including deployment that facilitates interoperability between public safety organizations."

AT&T and Verizon found much to fault with Forsees testimony.

Verizon Senior Vice President Tom Tauke told the panel that Sprint was "trying to use regulatory measures to undermine a successful market-based business environment." Instead of regulation, Tauke contended, the FCC should "affirm the current special access policy that removes government-regulated pricing where competition exists in the market."

Parley Casto, AT&Ts assistant vice president for strategic pricing, said the special access market is thriving.

"Our customers constantly remind us that if AT&T does not offer them what the want, they have plenty of special access alternatives," Casto said. "During negotiations with AT&T for the purchase of backhaul special access services, Sprint has repeatedly pointed out to the AT&T team that Sprint has many other options."

The hearing was another in a series on the state of the U.S. telecommunications industry since Markey assumed control of the subcommittee in January.


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