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Customer loyalty on the line for local phone companies

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Kim Leonard can be reached via e-mail or at 412-380-5606.

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Dale Cowher wasn't unhappy with Verizon.

But after he got married and moved from Crafton to Mt. Lebanon last year, he dropped the giant telecom company that owns the region's phone network and chose a much smaller competitor.

His financial services business, Cowher Butler Group, had been using Curry Communications Inc. as its phone service provider since 2000.

"I just like dealing with Curry. If there's a question or a problem you don't have to go through a lot of red tape or hassle, and their rates are extremely reasonable."

Southwestern Pennsylvania consumers have had a handful of options for basic, local telephone and related services in the nine years since the passage of a federal telecommunications law designed to encourage competition.

"That handful is getting smaller, though," said Irwin A. "Sonny" Popowsky, the state's consumer advocate.

Some carriers have been selling local, residential packages for years in direct competition to Verizon and other companies with their own networks. "But the ones that serve the most customers -- MCI and AT&T -- have stopped even trying to get new customers" mainly because changes at the federal level have made the business less attractive, Popowsky said.

That shrinking of "land-line" service options is far from the end of phone competition.

Traditional phone companies are losing business to cell phone carriers as many people forget their plug-in home phones and "go wireless." And phone, cable TV and plenty of other companies are building new bases of customers who make their calls over the Internet.

For basic local phone service, consumers can pick from a variety of plans that Verizon, Alltel, Penn Telecom, Sprint or other regional phone companies with networks provide. Or they can look at a competitor, such as Curry, of Monroeville, or Full Service Network, based Downtown, for a deal that suits them better.

Verizon has been losing traditional phone business. In Pennsylvania, the company had 6 million phone lines at the end of 2004, compared to 6.3 million in 2003 and 6.7 million the year before that, spokesman Lee Gierczynski said, although the company doesn't track the reason for the decline.

Statewide, 150 competitive carriers now serve 20 percent of the phone lines, the fifth highest rate nationwide, said Jane Fortin, director of regulatory affairs for Verizon. "They've been very successful in Pennsylvania, and have a significant presence in the market," she said.

Curry, in fact, has enjoyed slow, steady growth and little turnover since its start in 1996, founder John Curry said, although he won't specify customer numbers.

"It's been a hard growth, though. Consumers still don't realize there are other phone companies out there," said Curry, a former AT&T and Bell employee who started his company after being "downsized" from Verizon.

Now, Curry and other resellers of network services are awaiting Federal Communications Commission rules due out this month that could change the way they do business. The companies now lease pieces of the incumbent local phone companies' networks in order to serve their customers, but the FCC is expected to limit this practice and give the competitors about a year to build their own facilities, or take other steps.

"We're in transition now," Curry said of his company, although in the past week he has been favoring a move toward Internet calling, instead of spending hundreds of thousands of dollars on switches and other equipment to replace what he now leases.

"That is probably where we'll end up a year from now," he said of the technology known as Voice over Internet Protocol, "rather than try to deal with the broken wheel that Verizon has us working with."

The nation's major phone companies have been fighting a requirement in the 1996 federal law that they lease the use of their networks, and charge wholesale rates set by state utility regulators. Verizon expects to continue leasing its network to competitors, Fortin said, but it needs certain protections because in states like Pennsylvania the set wholesale rates don't cover costs.

Competitors are charged just under $7 a month for each Verizon line they lease in urban areas of Pittsburgh and Philadelphia, for example. "This is the lowest rate in the United States" for this type of line, Fortin said, and it dropped this fall from $10.25. Verizon has appealed the state's new rates, she said.

While many consumer groups have criticized the FCC's position as fatal to telephone competition, many of the competitors expect to fare better than others because they are less reliant on the incumbent carrier's network.

Full Service Network, for example, has its own switching equipment Downtown and in some large apartment complexes, founder David Schwenke said. He started the company in 1989, and it now has about 15,000 customers in the Pittsburgh area.

"One of the things that has made Full Service Network a success is that we embrace change, rather than build up walls around it," Schwenke said. Other competitors have created their own niche markets, and expect to continue despite any changes by the FCC. Metro Teleconnect and DPI Teleconnect target customers with credit troubles who may have had trouble getting service elsewhere, for example.

Metro's basic local service costs $64.95 a month, much higher than Verizon and other resellers. "A lot of times, the incumbents won't provide an account to someone with a bad credit score," said Jerry Bankes, chief financial officer. "We are an alternative, but we can't sell for what Verizon sells for because our cost structure is higher than theirs."

HTC Communications, meanwhile, has carved out a small geographic area that is building its own network to provide telephone, high speed Internet and digital TV service to the Canonsburg and Avella areas in Washington County, CEO Grier Adamson said.

While he wouldn't disclose customer numbers, Adamson said the FCC's policy should have little effect on his business in Hickory, a new incarnation of a company that sold phone systems and then mobile radio services. Workers are "installing switches and cable, and in some cases the wire to enter the customer's house," he said.

Calling for choices

Consumers can buy service from an incumbent local exchange carrier, which owns the phone network for their region, or from a competitive local exchange carrier, which leases space on the incumbent's network.

Here are monthly rates for three comparable plans:

AT&T

$25 -- Unlimited local calls, plus two calling features.

Comcast

$24.99 Digital Phone Complete Value package, unlimited local and extended local calls, free voice mail for 12 months.

Curry Communications

$21.50 -- Unlimited local calls anywhere in Pennsylvania, plus three calling features.

Full Service Network

$24.99 -- Unlimited calls to metropolitan area, most of Allegheny County for Pittsburgh residents, plus choice of four features.

MCI

$39.99 -- Neighborhood 200 plan, unlimited local calls, 200 minutes of long distance, call waiting, caller ID, call waiting ID and three-way calling, plus calling card.

Verizon

$25.95 -- Verizon Local package, unlimited calls to nearby communities, caller I.D., call waiting and three-way calling.

Switching

Traditional phone companies are losing ground nationwide to a variety of competitors although in some cases the customers may just switch over to another division, like a wireless business, that is of a telecommunications giant.

According to the Federal Communications Commission:

  • Competing phone companies increased their numbers of access lines by 7 percent in the first half of 2004, from 29.8 million to 32 million.

  • Customers obtained local phone service through about 148.1 million traditional carriers' lines, 32 million competitors' lines and 167.3 million mobile wireless subscriptions.