Bell, FCC actions jolt phone industry
New government and corporate decisions are making the telephone industry shake like an overhead wire in the wind. The latest tremors surrounding the scheduled Jan. 1 breakup of the American Telephone & Telegraph Company promise to affect consumers nationwide.Skip to next paragraph
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The first jolt to the phone industry came Tuesday when the Federal Communications Commission (FCC) postponed until April 3 its plan to impose fixed charges for access to long distance phone service. The provision was a key element in the financial arrangements for splitting AT&T into seven regional phone companies.
AT&T reached out and touched its 3 million shareholders Wednesday by announcing it would make a $5.2 billion after-tax reduction in earnings, the largest write-off in history, to get ready for the breakup. The FCC gave word the same day that it would reduce its regulation of AT&T's competitors in the long distance business, and would study the possibility of reducing its oversight of Ma Bell.
Analysts are still studying the potential effects of these decisions. But the likely consequences for consumers include:
* A temporary reprieve from access charges for long distance calls and from a 75-cent charge for long distance directory assistance.
* An increased possibility that Congress will permanently block access charges.
* Pressure from the FCC on AT&T for deeper cuts in long distance fees than originally proposed.
* A chance that local phone companies will ask for new rate increases to make up for the loss of access charges.
* Potential delays in AT&T shareholders' ability to trade stock in the newly independent regional phone companies.
The turmoil in the phone industry ''will only get worse,'' says Donald Gooding, an analyst at the Yankee Group, a technology consulting firm. ''We are not expecting relative calm until sometime in late 1984.''
AT&T executives are not happy about the FCC's short-circuiting the access charge. The delay ''throws existing plans awry, and we have not yet come up with answers'' to all the problems involved, AT&T chairman Charles Brown told a New York press conference. Nevertheless, the company expects the breakup to take place on schedule.
A major problem is how to compensate local phone companies for maintaining the lines and equipment used in making long distance calls once they are no longer part of AT&T. AT&T may need to seek a waiver from the judge overseeing the divestiture in order to keep using the current system.
While much of the detail surrounding the FCC decision still must be worked out, some effects on consumers are clear. ''It will mean a savings of two bucks per month (on interstate long distance access) as well as savings on access charges for intrastate'' long distance calls, notes Harry Newton, publisher of Telecom Library, a New York communications research firm.
By blocking the access charges for three months, the FCC has ''totally discredited AT&T's position on Capitol Hill,'' argues Samuel Simon, executive director of Telecommunications Research and Action Center, a consumer organization. AT&T has mounted a $1.5 million lobbying effort to keep Congress from canceling or delaying the highly unpopular access charges for residential phone users. Part of its argument was that the charges needed to be in place for divestiture to take place. Congressional staff members say the FCC action has improved the chances for access legislation. Different versions of such a bill are pending in the House and Senate.
Meanwhile, the FCC is putting heat on AT&T over new rates the company applied for on Oct. 3 as part of the plan to charge access fees. The agency says that the charge for some private lines used by business will climb as much as fivefold. And officials questioned the adequacy of long distance rate cuts AT&T seeks.
Company officials note that the average interstate long distance rate cut the company filed for earlier this month - averaging 10.5 percent - will not go into effect as a result of the FCC order delaying access charges.
The rate cuts AT&T has proposed are smaller than the roughly $3 billion it will save when the public begins paying access charges, notes Mark Luftig, a vice-president at Salomon Brothers. He says that is justified, because AT&T has ''not been earning an adequate rate of return.''
Regional phone companies might have to file for additional rate increases if access charges were permanently blocked or reduced by Congress, some analysts say.
Ironically, shareholders and customers may benefit from the $5.2 billion write-off AT&T will take Dec. 31. The bulk of the charge lets the company write off equipment on its books down to market value. That could let the company sell existing equipment at lower prices. And its earnings will now look better when compared with the assets used to produce them.