The state commission, arbitrating a dispute between AT&T Corp. and GTE Hawaiian Tel, Hawaii's monoply carrier, yesterday ordered Hawaiian Tel to lease capacity on its local network to AT&T at a 15 percent discount off retail rates.
AT&T, in turn, would resell the service to customers, providing what would be the first major competition to Hawaiian Tel in the local arena.
The interim discount is well below the nearly 24 percent sought by AT&T but more than the 7 percent to 12 percent that Hawaiian Tel claimed was fair.
AT&T spokesman George Irion said it was too soon to say whether the 15 percent is enough to enable the company to offer service at below Hawaiian Tel's retail rates.
But he noted the discount is much less than what other states have authorized.
The discount provision was part of a wide-ranging PUC order that sets parameters on how AT&T will be able to lease capacity from Hawaiian Tel. The idea is for AT&T to offer local service without having to initially build its own network.
State and federal regulators have adopted that strategy nationwide to more quickly foster competition in markets that have been monopolized for decades.
Calvin Tadaki, a Hawaiian Tel spokesman, said the utility was disappointed with parts of the order, saying they give AT&T an unfair advantage. He wouldn't say which parts the company didn't like.
If the ruling isn't modified, Hawaiian Tel customers would in effect subsidize AT&T's entry into the market, Tadaki said.
He said Hawaiian Tel is considering whether to challenge the order or ask the commission to reconsider it.
Beyond the importance to AT&T, yesterday's order is significant because it provides a benchmark for how other competitors will be able to purchase services from Hawaiian Tel on a wholesale basis. That, in turn, will affect what those competitors charge their customers.
Eric Tom, general manager of Sprint Hawaii, which also plans to offer local service as a reseller, questioned whether the 15 percent provides a large enough cushion for competitors to offer substantially discounted rates.
Without the lure of significantly cheaper rates, some customers may be reluctant to switch from Hawaiian Tel, enabling the utility to maintain such a dominant market position that true competition is stifled, Tom said.
"The 15 percent is definitely enough to put us in business, but I don't know if it's enough to create opportunities for substantial discounts," he said. Given the money that resellers have to put into enhancing services, "that 15 percent gets eaten up real quick."
Some states have ordered local carriers to offer competitors as much as 30 percent-plus discounts. The federal government has set a range of 17 percent to 25 percent if states opt not to decide the discount.
The PUC approved 15 percent as an interim measure, saying it wanted more time to analyze data before deciding on a permanent number. The commission gave GTE and AT&T 30 days to reach an agreement based on yesterday's order. Once that agreement is submitted, the PUC has 30 days to approve it. Then the two companies must implement the pact.
That would mean the soonest AT&T could launch local service is the second quarter of next year, Irion said.
Edward Murley, state regulatory directory for Oceanic Communications, which is building its own Oahu network, applauded the commission's ruling, saying it provided good balance in striving to foster competition.
If the PUC was to authorize too steep a discount, Murley said, that would discourage companies from investing in competing networks, leaving consumers with no true choices on who provides their dial-tone service.