Reversing the Charges

By Robert T. Grieves

The FCC cuts long-distance telephone rates by $1.8 billion

Despite the court-ordered divestiture of American Telephone & Telegraph that took place on Jan. 1, reaching out and touching Aunt Maude in Dubuque has continued to be an expensive proposition. Ma Bell has long claimed that it was levying high rates on long-distance service as a way of keeping down the cost of local calls. Last week the Federal Communications Commission took a giant step toward rearranging that system by ordering AT&T to slash long-distance rates by 6.1% beginning May 25. The move could save American consumers up to $1.8 billion a year.

The long-distance-rate cut, the first in 14 years and the biggest ever, marked the beginning of the FCC's major restructuring of telephone charges in the wake of the divestiture. The overall goal is to transfer as much of the phone system's costs as possible to the people who use the specific services. Said FCC Chairman Mark Fowler of the rulings: "We are beginning to eliminate the crazy-quilt pricing that prevailed in a predivestiture world. My hope is that in the next two to three years we will see long-distance rates reduced 35% to 40%."

The FCC also announced two decisions that could increase phone bills by $1.3 billion annually, but these measures are expected to hit businesses primarily. The commission approved a special fee of up to $6 a line for business customers with multiline telephones. The FCC also allowed AT&T to charge 50-c- for longdistance directory assistance calls, which in the past have been free. Most families use that service only occasionally, and the FCC softened the blow for them by requiring AT&T to permit two free long-distance directory assistance calls a month. Businesses such as credit bureaus and marketing firms, on the other hand, often use it eight hours a day, and would thus be hit by large extra costs.

The FCC's rulings also had an impact on AT&T's long-distance competitors, such as MCI and GTE's Sprint. Since AT&T controls about 94% of the long-distance market, the agency has been trying to encourage more phone competition. The FCC last week reaffirmed its earlier decision that AT&T's competitors had to pay only 55% as much as AT&T to link up with local telephone networks. This means that the smaller companies should be able to continue charging lower prices than AT&T. Because of their discount rates, MCI and GTE are currently enjoying booming business. Two weeks ago, GTE announced that because the firm had such a rush of orders, it had to stop taking new customers in some parts of the country.

Last week's FCC decisions grew out of a controversy that began last fall over whether telephone customers should pay special monthly fees for their long distance service. Originally the FCC proposed a monthly charge of $2 for residences and small businesses and $6 for larger firms. In September AT&T proposed cutting its long-distance rates by as much as 10.5%, or $1.75 billion, in the expectation that the FCC would put into effect the so-called access fees. But Congress effectively blocked their imposition in the face of public pressure over the $2 fee.

AT&T still insisted that it needed extra revenues, but the FCC last week indicated that AT&T's proposals would have allowed it to make too much on long-distance service. AT&T would have earned an 18.64% rate of return on long distance, far above the 12.75% allowed by the commission.

-- By Robert T. Grieves. Reported by Jay Branegan/Washington

With reporting by Jay Branegan/Washington