Phone Companies Seek $10 Hike in Monthly Charges
Phone companies nationwide are proposing that local phone bills rise by about $10 a month over the next several years.
The companies say the local rate increases would be more than offset by declining long-distance bills and lower rates for add-on services such as call waiting and caller identification. But consumer groups dispute that claim, saying the net effect would be higher phone bills for Americans.
Bigger phone bills are just what lawmakers and the industry said would not result from a new telecommunications law that was enacted in February. Supporters of the deregulation bill trumpeted a new era in which brisk competition would mean lower rates and more choices for consumers.
The proposals for higher local rates have engendered some initial opposition at the Federal Communications Commission, which would have to approve the plan. “I’m totally focused on the need to keep the local phone bill affordable,” FCC Chairman Reed E. Hundt said.
The phone companies’ rate proposals are part of a debate mandated by the telecommunications bill over how to continue a decades-old program in which certain phone services are deliberately overpriced in order to generate about $18 billion a year in subsidies to local phone companies.
Much of these subsidies goes to provide service in rural areas, where it can cost up to four times as much to wire up a home as in a city, and to give rate breaks to low-income households. The rest of the money--the industry doesn’t agree on what the precise figures are--is used to pay off the phone companies’ past investments in network equipment.
The crux of the phone companies’ plan is to generate much of the subsidy pool by raising local rates. “Right now the average local rate is about $18. Over the next four or five years it’s reasonable to think of a $28 basic rate,” said Mary McDermott, vice president of regulatory policy for the United States Telephone Assn., which represents phone companies.
But she added that “it’s sort of alarmist to say local rates will go up” because of declining prices in other services.
Her figure roughly coincides with the findings of a study of the FCC filings to be released today by a coalition of consumer advocacy groups that includes the Consumer Federation of America, the Consumers’ Union and the American Assn. of Retired Persons.
“Now that [the phone companies] are forced to put their cards on the table and show what they’re really after, all this talk about competition and opening markets don’t amount to anything except for rate increases for local telephone subscribers,” said Bradley Stillman of the consumer federation.
The groups say that of 13 telephone companies that sent proposals to the FCC, most suggested that local rates would have to rise to pay for universal service subsidies. Only two--Nynex Corp. and MCI Communications Corp.--categorically were against any local rate increases. Approximately $13 billion of the $18 billion in subsidies comes from inflated “access fees” that long-distance companies pay to local companies to begin and complete long-distance calls, and other artificially high charges for such services as caller ID and business phone use.
The consensus approach among the phone companies is to price those services according to what they cost to provide. That would cut the phone companies’ revenues by about $13 billion, according to the study by the consumer groups.
Under current regulatory systems, most phone companies are allowed to make as much profit as they can without raising prices above certain levels. Consumer groups contend that they are making too much profit and that the $13 billion would amount to excess earnings that they could afford to lose.
The local companies dispute that and say they would need to make it up somewhere else. The main source would be local telephone rates. These increases, they suggest, could be accomplished through federally mandated fees tacked onto local phone bills, as well as through higher rates approved at the state level.
Some local phone companies, in their FCC filings, recognize that any huge rate increases might upset the guarantee of universal phone service, by making people on the financial edge drop their phone service. So the U.S. Telephone Assn. and Bell company SBC Communications Inc., for example, recommend capping rate increases to 1 percent of a state’s median income.
That limit, and other variables in states’ telephone service, such as how costly phone service already is, would result in widely varying rate increases. The District of Columbia, for example, would see local telephone bills increase from an average of $24.11 to a new average of $21.87 to $23.75, the consumer federation calculates, while Los Angeles would get an increase from an average of $13.31 to an average of $29.17.
Local phone companies contend that since long-distance companies’ costs of doing business would be cut by billions of dollars under the plan, due to the lower “access fees,” they would be able to lower their long-distance rates, creating a financial wash for consumers.
But many of these same local companies have complained that AT&T; Corp. and other long-distance carriers have failed to “pass through” previous decreases in access charges to consumers in the form of lower rates.
Long-distance companies “will try to hold onto as much of the $13 billion as they can for as long as they can” rather than pass the savings onto consumers, the consumer groups say in their study.
An AT&T; spokesman Monday disputed that claim, saying the company had “historically” passed on such savings to customers.
The consumer groups also argue that people who make few long-distance calls would not benefit from lower long-distance rates.
The groups want the FCC to delay any local rate increases until competition arrives in local phone service.
