FCC Lowers Profit Margin for AT&T;, Local Companies

The Federal Communications Commission, in an action that will cut long distance phone rates by $1.2 billion within two years, today lowered the rate of return, or profit margin, it set in 1981 for the American Telephone & Telegraph Co. and the nation’s local telephone companies.

The commission, on a 4-0 vote, set the rate at 12% for the local firms, including the Bell operating companies, and 12.2% for AT&T.; The rate had been 12.75%.

The commission said it will review the decision every two years.

The FCC meeting was held an hour earlier than usual so the commission could act before the opening of the stock exchanges.

Every Customer Affected

The action will affect every long-distance telephone customer. AT&T;’s rates and the fees the Bell companies charge long-distance companies for their connection to the local phone system are set with the objective of earning the amount the FCC has authorized.

FCC Chairman Mark Fowler said the new profit margins will have the effect of lowering interstate long-distance phone rates by $600 million the first year and by $1.2 billion over two years.

The commission in March, 1984, began investigating whether it should alter the rate of return for the companies in light of the changes in the telecommunications marketplace following the January, 1984, breakup of the Bell System.

AT&T; had argued that the flat 12.75% rate was too low for it to compete effectively after divestiture and had proposed other alternatives, including a formula that would give it a range of profits between 11.2% and 17.2%, for an approximate rate of 14.2%.

Weighing Appeal

AT&T; spokesman Herb Linnen said the company is unhappy with the new rate and is weighing an appeal. He said the lowered rate would not necessarily mean immediate reductions in long-distance charges, but could be translated into delays in future increases.

The 12.2% rate of return will apply to all local companies, although some had argued that special competitive situations make the phone business riskier in some parts of the country than in others, making it more difficult to raise capital without promising a higher rate of return to investors.

But Fowler said healthy companies, such as AT&T; and the local carriers, should find no problem raising capital under the new rates, which he called fair to consumers and stockholders.

Over the last year the commission has issued several orders changing the formula for figuring the rate local Bell operating companies could earn for interstate services, but the resulting change in the actual profit margin was not revealed until today.