MCI Will Urge Deregulation of Rival AT&T; : Move Aimed at Pushing Up Long-Distance Rates
Squeezed by rising costs and industrywide rate cuts, MCI Communications urged the federal government Thursday to unleash its giant competitor, American Telephone & Telegraph, from regulation in the long-distance telecommunications business.
MCI, a distant second to AT&T; as a long-distance carrier, will press its position in a filing today with the Federal Communications Commission.
At a Washington news conference, MCI President Bert C. Roberts Jr. said, “It’s time to let the market manage AT&T.;”
In its filing, MCI will state that “despite questionable FCC policies and practices . . . competition has been developing and is now at the point that FCC regulation is no longer required to prevent monopoly pricing by AT&T.;
“An unregulated, increasingly competitive interexchange market can benefit consumers more than regulation.”
Roberts conceded that there is some risk that AT&T;, if deregulated, might indulge in predatory pricing to destroy its competitors, but added that “the greater risk” is “continuing the artificial market environment created by piecemeal FCC deregulation.”
Pricing Strategy
According to industry analysts, MCI’s strategy assumes that a deregulated AT&T;, now that its long-distance connection costs are down, would likely try to increase its profit margin rather than lower its rates further. That, in turn, would ease the pressure on MCI, said Joseph Battipaglia, an analyst with Gruntal & Co.
“There is a risky portion to this,” Battipaglia said. “AT&T; may choose to put more (price) pressure on, but I don’t think they would because they’d be very sensitive to cries of foul from its competitors and Congress.”
Moreover, he said, AT&T--hurt; by huge losses in its computer and telephone equipment businesses and by hefty restructuring expenses--needs to strengthen its bottom line. The company made a relatively slim $139 million on sales of $34.1 billion last year.
AT&T;’s charges are governed by rates of return set for the company by the FCC. By virtue of controlling 80% of the long-distance market, AT&T;’s prices set benchmarks for the entire industry.
Thus, the company’s rate cuts during the past three years, totaling about 30%, have pushed MCI and US Sprint, the nation’s No. 3 carrier, to cut their charges by similar amounts. The AT&T; rate cuts have stemmed from the lower charges it now pays to local phone companies under an FCC-imposed program giving all long-distance carriers equal access to their customers.
AT&T; Pleased
While the equal-access program has been under way, the long-distance competitors have been investing heavily in extending and improving their networks.
The industrywide rate reductions, MCI’s Roberts said, “have had a significantly negative impact on our profits.” Last year, the company, which is headquartered in Washington, lost $448.4 million on sales of $3.6 billion.
AT&T; said it was pleased with MCI’s announcement.
“It’s significant that a competitor is agreeing with our fundamental premise--that there is an inherent instability in trying to regulate companies in what is a competitive, market-driven business,” said William M. Clossey, AT&T;’s vice president for public relations.
He said AT&T; will make a filing today that will criticize the FCC for “not going far enough fast enough” in deregulating the company. The FCC last January proposed deregulating certain services offered by AT&T;, and invited comment from AT&T; and its competitors. Today is the deadline for that comment.
At the news conference, Roberts said the FCC could protect consumers by setting temporary ceilings on AT&T; rates. He said such an approach has been endorsed by FCC Commissioner Patrick Dennis, who is expected to head the agency upon the departure of outgoing chairman Mark Fowler.
Roberts also said the FCC should “redirect its resources to regulating the true monopolies in this industry--the local telephone companies.”
