Long-Distance Costs May Drop by Billions With New FCC Rules
The Federal Communications Commission adopted on Wednesday new pricing regulations for the nation’s eight largest regional phone companies that it says could reduce long-distance charges by billions of dollars during the next four years.
The new rules, effective Jan. 1, will reduce the rates that the seven Baby Bell phone companies and General Telephone are allowed to charge long-distance carriers for interstate services. These services include connecting long-distance companies with the local phone network.
Lower charges to the long-distance companies should result in reduced charges for long-distance customers, the FCC said. But while the FCC said the action could save long-distance callers “billions” of dollars during the next four years, no firm estimates of the savings were available, and no immediate savings were forecast.
However, an executive with American Telephone & Telegraph, the nation’s largest long-distance carrier, said the new price policies would result in a 5% rate cut by 1995 when contrasted with what the rate might have been without the new policies.
The new rules will have no direct effect on the rates charged for local service provided by General Telephone and the seven Bell telephone companies.
The FCC also voted to lower the rate of return that local telephone companies can earn on their long-distance services to 11.25% from 12%, a move widely decried by local telephone companies. However, the decrease is expected to result in an immediate $317-million cut in fees the local phone companies can charge long-distance carriers.
The new pricing policies for the local phone companies--similar to those adopted by the commission a year ago for AT&T--allow; the FCC to regulate the long-distance prices charged by the local telephone companies, not the profits generated by those charges. Similar policies governing local service rates charged to California telephone customers were adopted last year by the state Public Utilities Commission.
Behind the new policies is the philosophy--still highly controversial--that if regulators focus on the prices phone companies charge, rather than their profits, the companies will have an incentive to lower their own costs or increase their revenues. By lowering costs or raising sales, the argument goes, phone companies would be able to increase their profits beyond what they could earn if their profits were controlled by regulators.
Under the new FCC order, local phone companies will be allowed to raise their long-distance prices at the rate of inflation, minus a “productivity factor” designed to account for the lower costs of producing phone service.
The FCC assured that the complicated formula would result in real price reductions to telephone company customers. In addition, local carriers will be required to share with customers any profits beyond a specified upper limit. If the company gets too profitable, it would have to return all its profits to customers.
