Math Errors Force Delay in PUC Phone Rate Vote

Kings and philosophers may not know mathematics, and telephone regulators are having a tough time of it, too.

Math errors have forced the California Public Utilities Commission to postpone a vote on proposals for raising the regulated rates that SBC Communications Inc. charges competitors for using its lines and gear.

Commissioners were supposed to set the new rates at their meeting Thursday, but have delayed the vote until Aug. 19.

The reason: The PUC’s staff has to rework the complicated computer model used to calculate how much it costs SBC to operate and maintain the lines, switches and other equipment needed to provide phone service.

PUC programmers entered incorrect data into the model, which rippled through the formula, producing proposed increases of as much as 25% over the current rate of $13.93 a month for the full platform of lines and gear.

“As complicated as the case has been, it’s coming down to about 10 mathematical mistakes -- pure math errors,” said Cynthia Marshall, SBC California’s vice president for regulatory affairs. “It’s unbelievable.”

SBC’s rivals have issues, as well. In one case, they say, the PUC’s staff forgot to carry certain numbers to a second column, causing a computational error.

Commissioner Carl W. Wood, who is overseeing the process, acknowledged that some calculations were wrong -- though he characterized the mistakes as “a little more complex than simple math errors.”

Companies such as AT&T; Corp. depend on lease arrangements with SBC and Verizon Communications Inc. to provide local phone service to customers in California. That’s because Verizon and SBC, the state’s dominant local phone company, control the so-called last mile of copper wire that connects homes to the rest of the telephone network. Their rivals are about two years away from devising a way around that last mile.

Both SBC and Verizon contend that the existing lease rates are below their costs and have lobbied to raise them. AT&T; and other rivals have threatened to pull out of the California local phone market if the PUC sets the rates too high.

SBC is pushing for a wholesale rate of $29.92, though Marshall said SBC would be satisfied with $21.

A PUC administrative law judge, meanwhile, has advocated a rate of $16.90. In an alternative opinion, Wood has urged $17.38.

The judge’s finding and Wood’s alternative, however, were based on the admittedly flawed formula.

SBC and its rivals generally agree that incorrect numbers were plugged into the PUC’s computer model. But their agreement ends there.

AT&T; and MCI Inc. figure that fixing the math errors would knock $2.50 off any rate that’s proposed.

But SBC says that if correct data were used, the result would be a much higher proposed rate.

For both sides, the problem isn’t just with the numbers themselves but with some of the PUC’s underlying assumptions.

For instance, the formula takes into account the interest rate SBC pays to borrow money. AT&T; and MCI contend that the PUC incorrectly used a 40-year term instead of a much shorter one, leading to an unrealistically high 9.9% rate that added 50 cents to the lease rate.

SBC counters that the interest rate is unrealistically low, failing to take into account the higher risks it faces in a competitive market. The company wants the rate raised to nearly 12.2%.

SBC’s rivals also argue that the PUC mistakenly added labor costs to a federal formula that already had factored in those expenses, an error that tacked on 75 to 80 cents. In his opinion, Wood used an inflation factor, pushing the labor costs higher.

But SBC and its main union, the Communications Workers of America, believe that he didn’t push them high enough. They say that labor in California is especially expensive, and that the proposals don’t cover some tasks or the time it takes to complete them.

If either new rate structure is adopted as is, AT&T; will “have to evaluate what it does to the cost of providing service in the state,” said Kenneth P. McNeely, AT&T; California’s president.

AT&T;’s decision won’t rest solely on the outcome at the PUC, which is working against the backdrop of bigger changes nationwide. In March, an appeals court threw out key phone competition rules from the Federal Communications Commission, casting doubt on the future of any nationally regulated leasing scheme.

AT&T; said two weeks ago that it would stop marketing new local service to customers in seven states. McNeely said the same could happen in California if higher rates were adopted.

“We’re already under water with local customers,” he said. “We have to have some economic incentive to compete in this market.”