WASHINGTON, May 22 /PRNewswire/ -- Despite claims by the Regional Bell Operating Companies (RBOCs) that they are being forced to lease phone network elements to competitors at "below cost" prices, a new study by the Competitive Telecommunications Association (CompTel) demonstrates that wholesale leasing is a profitable business for the Bells. As first quarter 2003 ended, the four Bell companies were earning wholesale profits of at least $605 million a year on the unbundled network element platform (UNE-P) lines they lease to competitive carriers, according to the study entitled "Wholesale Lies: The Truth About RBOC UNE-P Costs."

"The numbers are clear, wholesale leasing is a moneymaker for the Bells," said CompTel President H. Russell Frisby Jr. "On average, the Bells are earning more than 20 cents on the dollar every time a competitor leases a UNE- P line. That's a good business."

SBC Communications, which recently reported that it was providing some 5.78 million UNE-P lines as of March 31, was earning $275 million in annual profits on those lines, CompTel's analysis shows. Verizon Communications, which was providing more than 3.5 million UNE-P lines at quarter's end, was next with annual UNE-P profits of $149 million.

As a group, the Bells were leasing about 11.6 million UNE-P lines to competitive local exchange carriers (CLECs), up from 7.5 million nine months earlier. On average, they were earning $57.60 annually on each line with a range from $41.76 on the low end for Verizon to $104.64 for Qwest.

Range in Margins Suggest Some UNE-P Rates Too High

On a per-line basis, the study found a wide range in profitability from company to company, primarily because of disparities in the authorized wholesale rates from state to state. While SBC has the lowest monthly embedded expenses among the Bell companies at $15.97 a month per line, it also receives the least revenue at $19.94 per line. But that still enables SBC to earn nearly 20 percent profit on average on each line. At the other extreme, Qwest receives an average of $26.07 per line and its per line profit totals nearly $105 per year.

"SBC may be jealous of its Bell rivals," Frisby said. "But what these numbers tell me isn't that SBC's UNE-P rates are too low, but that the rates charged by the other Bells may be too high," Frisby said.

"On the other hand, if there are higher profits available in other Bell company regions, one answer might be for the Bells to compete against one another," Frisby added. "Something they have consistently refused to do."

Frisby said the study validated the FCC's recent decision to stand by UNE- P access, which is enabling more consumers every month to exercise choice and reduce their phone bills. He noted that an earlier CompTel study, released in January 2003, showed that residential consumers could save $9.2 billion a year on local phone service in a fully competitive environment.

Frisby also noted that the current rate-setting process was upheld by the U.S. Supreme Court last May. The Court called the state rate-setting process "smooth-running affairs" and said that the Bell's proposed historical cost alternative would enable the RBOCs to saddle consumers with inefficiencies "caused by poor management . . . or poor investment strategies."

     Study Highlights

     Revenue Data

                 Monthly Revenue  Monthly Expense  Monthly Net  Return as % of
     Company     per Line         per Line         Margin       Revenue

     BellSouth   $25.64           $19.64           $6.00        23.4 percent
     Qwest       $26.07           $17.35           $8.72        33.4 percent
     SBC         $19.94           $15.97           $3.97        19.9 percent
     Verizon     $21.54           $18.06           $3.48        16.2 percent
     All RBOCs   $22.22           $17.42           $4.80        21.6 percent

Note: "All RBOCs" data represents a weighted average. The cost data are from "The Financial Implications of the UNE-Platform: A Review of the Evidence," by T. Randolph Beard, George S. Ford, Christopher Klein ("BFK"), Commlaw Conspectus (forthcoming), and available at Telepolicy.com, May 2003. The revenue data are from "Status & Implications of UNE-Platform in Regional Bell Markets," Commerce Capital Markets, November 12, 2002, as reported and adjusted for consistency by BFK.

    UNE-P Earnings Data

                 UNE-P Lines as   Monthly per    Annual Per     Annual Total
     Company     of 1st Q '03*    Line Margin    Line Margin    Rate of Profit

     BellSouth   1.80 million     $6.00          $72            $130 million
     Qwest       490,000          $8.72          $104.64        $51 million
     SBC         5.78 million     $3.97          $47.64         $275 million
     Verizon     3.57 million     $3.48          $41.76         $149 million
     All RBOCs   11.63 million    $4.80          $57.60         $605 million

Note: "All RBOCs" margins are a weighted average. The All RBOCs profit is the sum of the individual company totals.

Except for Qwest, UNE-P lines data are for 1Q2003. Qwest lines are for 4Q02, because 1Q03 data were not yet available.

Based in Washington, D.C., CompTel (Competitive Telecommunications Association) represents competitive telecommunications providers. CompTel's mission is to protect and advance the interests of its member companies so as to ensure the survival and prosperity of the competitive telecommunications industry in the U.S. and overseas. The Association provides policy and regulatory expertise, educational and technical support, as well as business opportunities for its member companies. CompTel's members include the leading companies building and deploying next-generation, packet and IP-based networks to provide voice, data and video services around the world. For more information, visit www.comptel.org.