A philosophical debate emerges about telephone

Is the phone a business service or a human right? That is the nub of the debate over how the phone is regulated -- or whether it is regulated at all.

For generations state and federal government encouraged the phone company to operate as a nationwide monopoly. Freed from worries about price competition, the reasoning went, the phone company could make telephone service universal.

An interconnected America was the national goal, and AT&T was agent of that goal.

At the end of World War II, fewer than half of American households had phones. A massive building program was undertaken after World War II, and by 1980, 96 percent of American households had phone service. The goal had been achieved.

Little known to the general public, however, was that long-distance callers subsidized local callers. Once long-distance lines and microwave relays are set up, the big job is done; maintenance and operating costs are relatively light, considering the nationwide network of customers. Not so with the ``local loop'' and branch exchanges. Running and repairing copper wire in remote locations is especially costly considering the more diffuse customer base.

For years the phone monopoly compensated internally for these inefficiencies, and that is why frugal families and businesses who minimized their long-distance calls saved money. A fraying monopoly

But in the late 1960s and '70s, things began to change. Technological innovations and court rulings allowed companies such as MCI to patch into the phone system. Because MCI and its kin were not (and are not) in the local phone business, they can take advantage of the most lucrative area of telecommunications, long distance. And, at least initially, these firms were not giving local phone companies any subsidy to maintain the local loops that brother AT&T was contributing.

The Bell monopoly was fraying at the edges. The 1984 breakup of AT&T made the monopoly's demise official. AT&T was left to compete with the likes of MCI and GTE in the long-distance business. Nynex, Ameritech, Southwestern Bell, Bell Atlantic, BellSouth, US West, and Pacific Telesis were left with the local service.

Costs and charges would have to come into line: Long-distance charges would drop, local charges rise. And that brought about an important new problem -- bypass.

Increasing numbers of businesses that use phones extensively to communicate or to transmit volumes of data -- brokerage houses, for example -- have developed their own telecommunications systems: a local network and a link to a cheap long-distance carrier. Or even their own satellite links. They bypass the local phone company, where charges are now on the rise.

Bypass means lower revenue for the local phone company. If that goes unchecked, the local phone company will have to charge higher rates to its remaining local customers.

The cream of the business is getting skimmed off. What are left for local phone companies are customers who either must pay more for local service (often these customers are ones who can ill afford the higher charges) or suffer service deterioration.

This is not yet an alarming problem, but trend lines indicate that, if unchecked, urban users will have cheaper, more sophisticated telecommunications than rural users; corporate users will have better quality phone service than individuals; the rich will have a much better phone system than the poor. Fighting bypass

Still, the Federal Communications Commission's view has been that prices of phone service should be related to costs.

Attempts to overcharge toll users in order to promote lower residential rates ultimately provide incentives for bypassing the local loop. Hence, the FCC devised a series of graduated access charges for business and residential customers. The FCC has indicated access charges for residential customers will be phased in and will not exceed $4 a month until 1990.

At the same time, with the spreading use of bypass techniques and the rising costs of local service, state and federal regulators are looking for ways to modify market forces. An AT&T monopoly may not be good, but unbridled market forces are not good either.

At the state level especially, ``universal'' telephone service is still the operative goal. Each new customer increases the value of the system to others; the phone binds society together; emergency access to a phone is vitally important.

A 1984 Congressional Budget Office study of the rich/poor disparity under deregulation suggested several ways of compensating for it. Food stamp vouchers could buy basic telephone service; the Rural Electrification Authority could expand its contributions toward rural phone service; the aid to families with dependent children program could help defray higher costs of local service.

``Lifeline'' (below cost) phone service for the poor and elderly -- similar to lifeline gas and electric service -- has been enacted in many states. And despite deregulation, public utility commissions, cities, and counties continue to exercise a great deal of control over rates the now-independent regional Bells can charge.

If the breakup of AT&T has generated aftershocks at the consumer level, it has also done so at the business level. This is where the equal-access question comes in. The equal access decision

Long-distance carriers such as MCI complain that AT&T is the long-distance carrier people remain with out of inertia. Moreover, with carriers other than AT&T, you have to dial a long access code to get through, and that can be a hassle. Also the quality of the lines on non-AT&T calls often is poor.

Equal access is supposed to change this. Last year, local phone companies began a three-year process of giving alternative long-distance carriers the same quality of hookup to their central switching as AT&T has enjoyed. This eliminates the need for customers to dial a long code of numbers to reach AT&T's competitors.

So far, about 5 percent of the more than 60 million connections to equal access have been made, and starting in a few weeks, millions of Americans a month will be asked to choose a primary long-distance company (although they will still be able to access other carriers via a five-digit code).

By Sept. 1, 1986, two-thirds of each telephone company's switches must be converted. However, equal access may never come to areas served by smaller telephone offices that are too small to convert economically.

What if a consumer is not interested in choosing? Which company is the ``default carrier''? Initially, as part of the divestiture plan, AT&T was designated the default carrier. That was a windfall for AT&T, since early equal-access balloting sparked low interest among consumers (although response rates now are somewhat higher than in the first year).

``It was clear to us that people were not choosing new [i.e., non-AT&T] service in droves,'' says a spokeswoman with the FCC. ``Seventy percent of the consumers were not voting, and AT&T was getting all of their business as well as the business of those who chose AT&T.''

On Feb. 14 the FCC filed an ``expression of concern'' and asked for ideas on how to make equal-access more fair to AT&T's competitors. One way, the FCC spokeswoman says, might be to use two sets of ballots. One would notify consumers of their need to choose among AT&T, GTE, Allnet, etc. If there were no response, a second would warn that, if one of those carriers is not chosen, service will automatically go to a default carrier.

Still, how do you choose the default carrier? The FCC spokeswoman says the agency is trying to find an fair way -- perhaps pre-selection balloting which would determine what percentage of consumers favor which company. If 50 percent wanted AT&T, 30 percent wanted GTE, and 20 wanted Allnet, default service would be divided up that way, too.

The amount of time and energy that goes into deciding such questions shows clearly that, while phone service today is no longer a benevolent monopoly, neither is it a commodity afloat in the marketplace. The goal may be less government regulation, but at least for now regulation remains quite high.

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