Telecom list reveals heavy competition.

THE SHUFFLING ON THIS year's list of the largest telecom companies operating in Arkansas underscores the reasons some of the players want to see a change in the rule book.

"It's just a very competitive industry," said Michael McAlister, general counsel for Navigator Telecommunications LLC of North Little Rock, a multiservice carrier whose assessable revenue slumped by 25 percent last year.

AT&T, a name once synonymous with long-distance phone service, likely was still the largest interexchange (long-distance) carrier in the state in 2003, as measured by assessable revenue. But the company's revenue figures are under seal while the Arkansas Public Service Commission considers its request for confidentiality, so it is not ranked on this year's list.

Instead, the No. 1 spot is occupied by Southwestern Bell Communication Services Inc. of Pleasanton, Calif., the SBC Corp. division that was allowed to begin selling long-distance service in Arkansas in late 2001. In just two years, it parlayed its strength as the state's dominant local-exchange carrier to come within striking distance of AT&T.

Southwestern Bell reported $37.4 million in assessable long-distance revenue last year, more than double the $17.5 million it reported in 2002. By comparison, AT&T reported almost $54.6 million in assessable revenue in 2002.

The only other long-distance carrier that reported a significant improvement in 2003 was Tulsa-based WilTel Communications LLC (formerly Williams Communications), which surpassed both Sprint Corp. and Quest Communications Corp. in Arkansas last year with $6.66 million in assessable revenue.

While market-leader AT&T was the likely source of some of Bell's $20 million in new long-distance business, other substantial losers were MCI Corp. (formerly WorldCom Inc.) and Sprint.

MCI's Arkansas revenue had already slumped to $45 million in 2002 as the company wrangled with a multibillion-dollar accounting scandal. In 2003, its assessable figure was down another 29 percent to $32 million.

Sprint's 2003 revenue in Arkansas was under $5.6 million--less than half the $12.9 million it reported to the PSC for 2002. And that includes about $22,000 in revenue from local service.

Sprint's bundle of local and long-distance, which was introduced in Arkansas in June 2003, did not catch fire, at least not immediately. By the end of the year, Sprint only had 347 local-service customers in the state, according to Karine Hellwig, who was responsible for filing the company's annual report in Arkansas.

Meanwhile, Qwest Communications Corp. took a 31 percent hit (to $2.22 million) and Verizon Long Distance dropped off the interexchange list completely because its assessable revenue in Arkansas dropped well below the $1 million minimum required for entrance to the list.

Although it is not regulated as an interexchange carrier, Vonage, a New Jersey provider of "voice-over-Internet" phone service, told Arkansas Business last week that it has approximately 600 customers in Arkansas.

Vonage introduced its service to the 501 area code in November and expanded to the 479 area code in northwest Arkansas in February.

Local Service

SBC Corp., through its two local exchange carriers in Arkansas, also topped the list of local phone service providers.

But its still-hefty lead on No. 2 CenturyTel is not as great as it used to be; in fact, SBC's assessable local-exchange revenue declined by almost $35 million in 2003--much more than it gained in long-distance revenue.

"The environment is extremely competitive in Arkansas. Our local telephone service revenue is down, and that's a perfect example of it," said Ed Allis, executive director of external affairs for SBC in Arkansas.

One beneficiary was clearly MCI, whose "The Neighborhood" package of local and long-distance service took off in a big way. MCI's local-exchange revenue bloomed from less than $1 million in 2002--too small to be listed--to more than $14 million in 2003.

MCI's local-exchange company, MCImetro Access Transmission Services LLC, is ranked No. 4, behind SBC, CenturyTel and Alltel Corp. of Little Rock. In addition, it almost certainly trails Sage Telecom Inc. of Allen, Texas.

Sage, like AT&T, has requested financial confidentiality and its numbers are sealed pending a PSC ruling.

"Sage's growth has been phenomenal here," Allis conceded.

MCI and Sage both lease lines from incumbent local exchange carriers--as required by the Telecommunications Act of 1996--and resell them to customers, often in service packages with highly competitive prices.

SBC, along with other "Baby Bells" created by the 1984 divestiture of AT&T, had objected to the Federal Communications Commission interpretations of the Telecom Act, which they maintain are unfair to the companies that have invested in building telephone networks.

"The FCC's cost methodology is designed for those (line lease) prices to be very low," Allis said. "We believe it keeps the prices for those pieces of the network below what it costs us to provide it."

And these bargain-basement prices discourage investment in technology from both directions, he said.

"If we invest in facilities and then have to lease them to competitors, we have to be very careful. And it discourages competitors from investing since they can lease cheaper than building their own," Allis said.

The Bells have had some success in the courtroom, and in April, SBC and Sage announced what the companies called a "historic" agreement in which Sage agreed to higher lease rates than those previously set by the FCC.

Still, SBC and other Baby Bells are lobbying for a rewrite of the Telecom Act--which some critics believe is already obsolete because it was written before widespread use of the Internet and when voice-over-Internet services like Vonage were unheard of.

Notable Changes

Other items to notice on the list:

* The three operating subsidiaries of E. Ritter & Co. of Marked Tree--Tri-County Telephone Co. of Harrison, E. Ritter Telephone Co. of Marked Tree and E. Ritter Communications Inc. of Jonesboro--have been combined into a single entry. This is more consistent with the way other companies have traditionally been listed.

* Comm South Cos. Inc. of Dallas dropped off the local-exchange carriers list because its revenue in Arkansas dropped below $1 million to $387,704.

* Delta Phones Inc. of Delhi, La., a reseller of telephone service that reported $4.2 million in assessable Arkansas revenue in 2002, was apparently in business in the state for about nine months of 2003 but has not filed an annual report detailing 2003 revenue.

Delta Phones, which did business in more than a dozen states, fell behind in its payments for telephone time to SBC Corp., and its Arkansas service was cut off for the final time in September after the PSC dissolved an injunction against SBC.

None of the company's phone numbers are still in service.