Long-Distance Access Fees Reduced by FCC

Federal regulators on Wednesday approved sweeping changes to telephone industry fees that will save long-distance phone companies $3.2 billion a year. Critics, however, contend the action will produce far less clear-cut savings for consumers.

Federal Communications Commission Chairman William Kennard unveiled the plan with enthusiasm, hailing the changes as “a giant step forward” and promising that “the overall [phone] bill will be lower for everybody” as a result.

As part of the FCC’s hard-fought compromise with the telephone industry, long-distance companies AT&T; Corp. and Sprint agreed to offer at least one calling plan that does not include a monthly minimum usage fee. MCI WorldCom has said it already offers one such plan.

Consumer groups have criticized those fees, which typically range from $3 to $5 a month, as unfairly shifting costs to customers who make few or no long-distance calls.

Kennard highlighted estimates showing that the revamped fee system will reduce phone bills by $2.52 per month for consumers who make less than 10 minutes of long-distance calls a month, and by $4.71 a month for consumers who make no long-distance calls.

About 32% of U.S. households make no long-distance calls, and about 41% make 10 minutes or less in long-distance calls each month, according to the FCC.

But many consumer advocates and others viewed the overall plan as mostly benefiting local and long-distance phone companies, which they say will reap billions in savings and will not be forced to share the windfall with their customers.

“It’s clear that the phone companies will be saving billions of dollars, and the disappointing thing is that nothing is clear about how much consumers will actually save,” said Gene Kimmelman, co-director of Consumers Union’s office in Washington. “The jury is out on what the overall impact will be for consumers.”

Citing the industry’s “spotty” record of passing along previous access charge reductions to customers, Kimmelman and others say they’ll take a wait-and-see approach on that part of the plan.

One Wall Street analyst, however, issued a blunt assessment of price-reduction prospects for customers.

“While the industry has pledged to pass through these savings to consumers in price decreases, the FCC has no practical way to enforce that pledge,” telecommunications analyst Scott Cleland wrote in a report Tuesday for Legg Mason’s Precursor Group. “To the extent that prices do not decrease as much as costs decrease (25% to 37%), which is very likely, the savings fall to the bottom line as earnings.”

Under the complex fee-reform plan, the FCC will substantially reduce the per-minute access charges that long-distance companies pay to local phone firms when their customers make or receive long-distance calls. The reduction, which takes effect July 1, will save long-distance carriers an estimated $3.2 billion in the first year.

The new plan will also combine two line-item charges--labeled on phone bills as the “subscriber line charge” and the “presubscribed interexchange carrier charge”--into one fee that will be charged by local phone companies as a subscriber line charge.

That newly combined subscriber line charge will rise to $4.35 on July 1 and then continue to jump each year until the fee reaches a ceiling cost of $6.50 per month, per phone line, in July 2003.

In addition, the FCC has removed a built-in subsidy for providing phone service in high-cost regions and made it an explicit cost. That subsidy now will be listed on phone bills as a new line-item fee called the “universal service fund,” with an estimated monthly cost of 33 cents.

The FCC believes that the increases in the fixed line-item charges will be more than offset by other factors in the reform plan, namely the elimination of minimum usage fees and a pledge by long-distance carriers to pass on their access-charge savings to consumers in the form of lower per-minute prices.

In New York Stock Exchange trading Wednesday, AT&T; shares fell 44 cents to close at $34.94, Sprint rose 82 cents to $60.50 a share and MCI WorldCom stock fell 44 cents to close at $37.63.