Business Notes TELECOMMUNICATIONS

In the five years since the breakup of the old Bell phone system, one of the last vestiges of Government regulation has been the Federal Communications Commission's control over AT&T's profit margin on its long-distance services. The company has been permitted to cover its costs and earn a return of precisely 12.2% on its investment. Last week the FCC voted to liberate AT&T's earnings, which should boost competition in the long-distance business.

AT&T will now have an incentive to cut costs, which could lead not only to higher profits but also to an opportunity to charge lower rates. At the same time, AT&T can change prices more quickly because it will no longer have to wait weeks for the FCC to scrutinize how each adjustment would affect the company's profits. Beginning July 1, the agency will replace AT&T's profit limits with adjustable price ceilings on long-distance service. The FCC will continue to impose floor prices to prevent the still dominant AT&T from staging a predatory price war with such rivals as MCI and US Sprint.