AT&T; Rate Cut Clears Way for FCC Reforms

AT&T; Corp.’s agreement over the weekend to pass savings from pending access-fee reductions to customers clears the way for federal regulators to vote this week on a sweeping overhaul of telephone subsidies.

The Federal Communications Commission has been debating how to reduce local access fees in a way that will benefit consumers, but the FCC hasn’t been able to reach a consensus because of the difficulty of balancing the competing interests of long-distance companies, local phone companies and business and residential consumers.

AT&T;, the nation’s largest long-distance carrier, on Saturday agreed to give residential customers two-thirds of the money it will save from the fees local phone companies charge for completing long-distance phone calls.

Local phone companies and competing long-distance carriers alike say they need to see details of AT&T;’s plan before deciding whether to adjust their rates.

If the commission adopts AT&T;’s plan during its expected vote Wednesday, similar terms would apply to MCI Communications Corp., Sprint Corp. and other long-distance carriers.

The FCC’s controversial telephone reform package, in the works for months, moved closer to reality over the weekend after AT&T; told the chairman of the FCC it would cut long-distance rates by 5% to 15% on July 1, passing along about $900 million in savings to residential and business customers.

But FCC officials said those savings will be partly offset by higher basic phone rates for multi-line users. Regulators have proposed that business and residential users pay $1.50 a month more for second telephone lines to help offset about $3 billion in new annual telephone subsidies mandated by the Telecommunications Reform Act of 1996.

The agency also is considering charging long-distance phone companies a new 75 cents a month pre-subscribed interstate carrier charge for each telephone in a home or business that is not a primary line. And FCC sources say the agency may impose a similar new charge on paging and cellular phone operators on the theory that they reap the benefits from subsidies that aim to ensure that even the poor and geographically isolated should receive affordable phone service.

However, FCC Chairman Reed E. Hundt says the overall bill for most phone users should drop when the long-distance savings are figured in.

The changes in telephone rates are part of a complex proposal to maintain affordable “universal” phone service for the poor and those in high-cost rural areas, while slashing the huge subsidies that are currently built into business phone rates, long-distance telephone fees and special services such as caller ID and call waiting.

The politically charged issue has touched off a firestorm of debate, pitting rural residents against urban denizens, businesses against residential users and the well off against the poor. FCC officials say the groups have flooded the agency with more faxes and e-mail--many of them irate--than on any other communications issue in recent memory.

Last week, when the total proposed monthly increase under discussion at the FCC was about $8 instead of $2.25 per month, University of Nebraska at Lincoln calculated its yearly phone bill could rise as much as $996,000, for example. University officials could not be reached for comment Sunday, but based on the new figures, one expert calculated that the school’s bill would rise about $280,000 annually.

Hundt said the more moderate rate proposals paves the way for adoption of a new subsidy plan on Wednesday.

Added FCC Commissioner Susan Ness: “I think we are well on track to having a package that will work for the benefit of all users.”

But businesses and some consumers groups disagree and remain unhappy with the revised subsidy plan, arguing that no increase in rates is justified.

“Telecommunications deregulation should be about less government, more competition, lower prices and higher quality,” said Raymond J. Keating, an economist for the Small Business Survival Committee, a Washington-based business lobby that is coordinating opposition among businesses, consumers and schools to the proposed rate increases.

“Increased universal service subsidies and higher line charges and fees on small business and other consumers--all under consideration by the FCC--do not fit this criteria.”

“To the degree they propose a per line charge would apply to pagers . . . it could price that service out of the reach of people since it is the most affordable wireless service now, and that would be a tragedy,” said Scott B. Harris, a Washington lawyer who represents the Personal Communications Industry Association, a trade association for providers of paging services.

Gene Kimmelman, co-director of the Washington office of Consumers Union, echoed Keating’s remark’s saying, “There’s enough fat in the telephone system that universal service can be funded without having to raise anyone rates.”

But Kimmelman acknowledged Sunday that the fight to spare multi-line phone users basic rate increases may be lost.

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Bloomberg News contributed to this report.