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Z-Tel Commends California Public Utilities Commission for Opening Largest U.S. Telecom Market to Competition

Z-Tel Commends California Public Utilities Commission for Opening Largest U.S. Telecom Market to Competition

Business Editors

TAMPA, Fla.–(BUSINESS WIRE)–May 16, 2002

Pacific Bell Sanctioned and Forced to Immediately Reduce

Some of the Nation’s Highest Telecom Rates

Z-Tel Technologies, Inc. (Nasdaq:ZTEL), a leading provider of local, long distance and enhanced telecommunications services, announced its overwhelming support of the California Public Utilities Commission’s decision today to force Pacific Bell to substantially reduce the rates that it charges competitors to access its local phone network. Pursuant to the 1996 Telecommunications Act, Z-Tel leases pieces, called unbundled network elements, or UNEs, of Pacific Bell’s network to provide residential and small business consumers bundled local and long distance phone service.

In a meeting today, the Commission ordered Pacific Bell to lower the prices Pacific Bell charges competitors for access to the loop, or the portion of the telephone line that connects to the consumer’s home, by 15% and switching by 69%, effective immediately. The Commission adopted these interim rates today based on trend analysis because it found Pacific Bell’s cost filings inadequate. In fact, the Commission sanctioned Pacific Bell for withholding evidence and for “Pacific’s blatant disregard for the rulings of the presiding officer.”

“This vote could not be timelier,” commented Robert A. Curtis, Senior Vice President, Strategic Planning. “The Commission’s move today punctuates the Supreme Court’s decision made earlier this week to uphold cost-based pricing and launches the next phase of competition in California. Perhaps more important, it will bring California consumers in step with those in other states that have begun to enjoy improved choices and prices as a result of opening their markets to competition.”

Despite local network costs that are generally lower than the national average, Pacific Bell’s UNE rates have consistently remained among the highest. In fact, Pacific Bell’s rates are approximately 158% higher than comparable states like Illinois. Consequently, only three percent of California consumers enjoy a choice in mass-market local services according to the most recent data available from the Federal Communications Commission.

Ron A. Walters, Z-Tel’s Regional Vice President, Industry Policy, added, “Californians have been deprived of alternative, innovative choices that companies like Z-Tel offer as a consequence of Pacific Bell’s outrageous wholesale UNE rates, which are actually higher than those they charge their retail customers. California consumers deserve more. We are thrilled to see the Commission right size these rates and breathe fresh air into the lungs of the California telecommunications market. As a result of the Commission’s move, Z-Tel intends to re-energize its commitment in California and is considering it as one of the next sites for the launch of its small business service.”

About Z-Tel

Z-Tel was founded in the wake of the Telecommunications Act of 1996. With the establishment of the Unbundled Network Element-Platform (UNE-P), competitive telecommunications companies became able to provide telephone service to end-users over the incumbent local telephone providers’ network. Z-Tel was formed around UNE-P with the vision of developing technology that would imbue the home phone with “Intelligent Dial Tone,” wherein home phone service can be personalized to meet consumers’ diverse communications needs in an intelligent, intuitive way.

Z-Tel offers residential and small business customers value-added bundled local and long distance phone service with proprietary Internet-accessible calling and messaging features. Z-Tel also makes these services available on a wholesale basis. Z-LineHOME(TM) is available in 38 states. Z-LineBUSINESS(TM), currently offered in Illinois, will soon be available in several states across the country. For more information about Z-Tel’s innovative services or about Z-Tel, please visit the Company’s Web site at www.ztel.com.

This press release contains forward-looking statements. These forward-looking statements are based on the belief of our management, as well as assumptions made by and information currently available to our management. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. The words “believe,” “anticipate,” “intend,” “expect,” “estimate,” “project” and similar expressions are intended to identify forward-looking statements. Forward-looking statements describe our expectations today of what we believe is most likely to occur or may be reasonably achievable in the future, but they do not predict or assure any future occurrence and may turn out to be wrong. Forward-looking statements are subject to both known and unknown risks and uncertainties and can be affected by inaccurate assumptions we might make. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially. We do not undertake any obligation to publicly update any forward-looking statements to reflect new information or future events or occurrences. These statements reflect our current views with respect to future events and are subject to risks and uncertainties about us. Hence, you are hereby cautioned, and Z-Tel hereby notes, that these statements may be affected by the risk that favorable growth and financial trends may not continue, the risk that the Company will be unable to efficiently and successfully enter new markets, the risk that the Company’s existing financing will not be sufficient to fund anticipated growth and that additional financing may not be available on favorable terms or at all, the risk that further state expansion may not be achieved, the risk that the Company will not be able to obtain the expected increases in activation speed, accuracy, efficiencies and economies of scale, customer satisfaction levels, leverage, cash flow, and scalability, and the expected decreases in its churn rate, costs and other expenses, from the implementation of its EDI initiative, the risk that future financial results, including, but not limited to, revenue, gross margin, EBITDA and capital expense, will be different from those anticipated, the risk that the Company will not attain EBITDA profitability or free cash flow in the expected time frame or at all or of the magnitude expected or at all, the risk that the Company will not obtain the expected benefits from recent rulings by the FCC and various state Public Utility Commissions, the risk that the regulatory environment in which the Company operates may not improve, may become less favorable for the Company or make it difficult or impossible to consummate its business plan, the risk that the Company’s quality initiatives, including those intended to limit its exposure to poor-performing subscribers, enhance its management of collections and receivables, increase its control over sales, general and administrative expenses, increase the quality of its revenue stream, and strengthen its cash position, will not be successfully implemented, adequately address its operational challenges, reduce the likelihood of or prevent the Company from having to take additional write-offs in the future or have the anticipated beneficial effects on its costs and efficiencies and its ability to generate positive cash flow and positive rates of return in the time frame specified or at all, the risk that the Company will not be in the position to return to a strategic growth strategy within the time frame specified or at all ,the risk that the Company will be unable to leverage excess capacity or that such excess capacity may not materialize, the risk that the Company’s wholesale initiative may not be successfully implemented or contribute to gross profit, the risk that the Company’s marketing, referral and advertising initiatives will not have the expected positive effects on the Company’s revenue stream, as well as the risk factors described in detail in the risk factors to be described in detail in Z-Tel’s upcoming 2001 Annual Report on Form 10-K to be filed no later than April 1, 2002; and in Z-Tel’s other filings with the Securities and Exchange Commission. Z-Tel undertakes no obligation to update or revise any such forward-looking statements.

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