Big 3 to Boost Long-Distance Phone Charges

Braving the wrath of customers and federal regulators, AT&T; Corp., MCI WorldCom Inc. and Sprint Corp. are increasing customers’ long-distance telephone charges to help pay for a $2.25-billion government-imposed Internet subsidy program.

The increases by the three largest U.S. long-distance companies will raise the monthly fees that appear on all phone bills. Although the net effect will vary by customer and by company, the fee hike will generally range from a few pennies a month to a 1.5% increase in a customer’s total bill.

The three companies say the fee increase is needed to help pay for the newly expanded universal service fund, a federally mandated program to subsidize phone service in rural and low-income regions. The Federal Communications Commission recently expanded the project to also pay for Internet connections for schools and libraries--adding about $1 billion to the annual cost borne by phone companies.

But officials at the FCC contend long-distance companies don’t need to increase line-item charges to pay for the subsidy because the FCC has been slashing the fees, known as access charges, that long-distance companies pay their local counterparts to connect their calls.

Earlier this week, the FCC said it had cut access charges by about $500 million. The agency made other reductions last year as well, and afterward chastised AT&T; and others when the FCC didn’t see commensurate rate reductions.

These latest increases will “create some political problems for the long-distance carriers” at the FCC, said Paul Glenchur, a telecommunications analyst with Charles Schwab Corp.’s Washington Research Group.

Consumer groups sharply criticized the fee increases and the FCC’s move to recoup the universal service charges through line-item fees instead of the old way--through higher per-minute charges.

“The net result is that they’re increasing the monthly fees you have to pay before you even make a long-distance call,” said Gene Kimmelman, co-director of the Washington, D.C. office of Consumers Union. “This is regulatory mismanagement that is extremely harmful to the average consumer who doesn’t make a lot of long-distance calls.”

He estimated that the FCC’s shift to fixed charges now costs consumers $3 a month in fees for a single phone line and $7 a month for two lines. Those charges are a hefty hit when you consider that the median monthly bill for an AT&T; customer is about $11, according to Kimmelman.

FCC Commissioner Harold Furchtgott-Roth, who vehemently opposed expanding universal service, noted that “business consumers could disproportionately benefit from the access charge reduction, while residential consumers pay for new universal service fees.”

MCI WorldCom, the second-largest long-distance company, said Thursday that it will increase its fixed charges to 7.2% of residential monthly bills from 6%. Fees for small and large businesses will also rise.

MCI WorldCom passed on the cost of funding the Internet program to consumers because “whenever we get an access charge reduction, we pass it along to our customers” in the form of lower rates, company spokesman Stephanie Elrod said.

No. 1 AT&T; Corp. said Wednesday that its customers will pay 99 cents a month, up from 93 cents. The company also said it would slightly reduce some per-minute rates to help offset the higher fee.

No. 3 Sprint is raising its fees for residential customers to 6.3% from 5.8% of the overall bill and is keeping its line-item charges for businesses at 4.9%.

The charges are shown on phone bills as line items called the “federal universal service fee” and began appearing last year--setting off a surge of customer complaints.

Kimmelman said the long-distance companies are pocketing much of the savings awarded them by the FCC through lower access fees.

“The vast majority of regular consumers are getting a net rate increase,” he said. “By my estimates, the AT&T; rate cuts amount to about $200 million to $300 million in savings for consumers at a time when the company is saving more than $1 billion.”

MCI shares rebounded $2.25 to close at $88.31 on Nasdaq. On the New York Stock Exchange, AT&T; rose 81 cents to $56.63, and Sprint fell $2 to $51.