Copyright 2002 Knight Ridder/Tribune News Service

Knight Ridder/Tribune News Service

The Dallas Morning News…06/05/2002

From LexisNexis

ATLANTA — The precipitous fall in phone and Internet service prices during the last few years has been so steep it's jeopardizing the financial viability of many telecommunications companies, said Verizon Communications Inc.'s vice chairman and president Tuesday.

Low cellular, long-distance and high-speed Internet prices have been a boon for consumers but have eviscerated profit margins and exacerbated the industry's downturn, Lawrence T. Babbio Jr. said.

"We need to restore profitability to this industry," Babbio said during a speech at the Supercomm trade show in Atlanta. "Everyone wants every service to every home or business at ever decreasing prices.

Digital subscriber lines, which cost about $50 a month today, should conceivably be 40 to 50 percent more expensive, Babbio told reporters at a press conference. He stressed New York-based Verizon wasn't planning to raise rates.

"The industry started out too low," he said. "It will take longer to make money in this industry than we thought. I think a lot of companies suffered for it."

Most local-phone companies increased DSL prices to $50 a month from $40 a month in early 2001. Comparable cable modem service typically runs about $45 a month.

Consumer advocates say those price hikes prove there isn't enough competition for broadband services. It's also why Americans have been slower to sign for high-speed services than Canadians, who on average pay just $30 a month, said Mark Cooper, research director for the Consumer Federation of America.

"Clearly if you have market power, you can put prices higher," he said. "Competition drives prices to cost, and that's the most efficient outcome."

Babbio said the advent of hundreds of new phone and Internet companies during the late 1990s created a downward spiral of prices. The trend took the greatest toll on long-distance companies, but the cellular industry has also suffered.

"In a lot of cases, companies, in order to gain market share and penetration, have lowered prices to the point where they can't make money anymore," he said.

Babbio emphasized Verizon, the nation's largest local-phone and wireless company, remains profitable because of its heft and scale. "We are the most efficient game in town," he said.

In their search for a way out of their protracted funk, telecommunications companies are re-examining all aspects of their business, including the prices they charge and the services they sell.

In recent months, long-distance companies have increased their per-month fees and certain rates and cellular-phone companies have scaled back the number of minutes they offer during the day. Internet access providers such as America Online have also hiked prices.

Increased consolidation will also help the industry overcome some of its challenges, Intel Corp.'s chief executive Craig Barrett said in a speech here Tuesday.

"Too many competitors in too many fields leads to excessive price erosion," he said. "Wherever you are, we are seeing consolidation, mergers and bankruptcies."

Barrett said more extensive deployment of broadband could help spur the industry as well, but policy-makers must give phone companies the green light to invest in new networks by freeing them from certain regulations.

That's a key priority for Verizon, which wants Congress to assure it won't have to share updated DSL networks with competitors at regulated rates before making substantial new investments.

"It's absolutely imperative that we have a national broadband policy," Babbio said.