Further opening the local telephone market to competition in the state, the Michigan Public Service Commission has established guidelines for pricing unbundled network elements and set a wholesale rate for bundled local service.
The local exchange carrier, Ameritech Michigan, complained that the combined price of all unbundled services could fall lower than than the bundled wholesale rate.
The commission adopted a total-service, long-run, incremental cost study to calculate the new rate offerings. The PSC set the discount for bundled wholesale services at 25.96 percent off retail, without operator and directory assistance services from Ameritech. The discount was set at 19.96 percent, if those services were included.
The commission rejected Ameritech's complaints that new competitors might take advantage of the unbundled rates to undercut the bundled price. The LEC had asked the commission to prohibit an "illicit form of price arbitrage" described by the LEC as "sham unbundling," or purchasing the combination of unbundled network elements to create complete local service at a rate lower than the bundled wholesale rate.
The commission found that such a scenario was speculative. It said that creating two possible avenues of market entry might actually serve the public by causing a decline in retail prices for local telephone service. It said that the pricing advantage cited by the LEC would call attention to excessive retail prices and provide "an impetus for further rate restructuring."Re Ameritech Michigan, Case No. u-11280, July 14, 1997 (Mich.P.S.C.).