FCC Orders Cut in Call Access Fees : Telecom: Baby Bells must reduce by $1 billion a year what they charge long-distance phone carriers. Critics are unhappy.

By JUBE SHIVER Jr

March 31, 1995 12 AM PT

TIMES STAFF WRITER

WASHINGTON — In a decision that critics say doesn’t go far enough, the Federal Communications Commission on Thursday ordered local phone companies to cut by about $1 billion a year the fees they charge long-distance carriers to route toll calls to their destinations.

Although FCC Chairman Reed Hundt called the rollback the largest reduction in access fees in history, many callers will probably not notice the cut because it will amount to less than a penny a minute on individual long-distance calls. What’s more, although AT&T; is legally required to pass the savings on to consumers, MCI, Sprint and smaller long-distance carriers are not--though competitive pressures may force them to do so.

Beginning Aug. 1, most callers will see a 2% reduction in their total long-distance bills, FCC officials said. However, because of a complex set of incentives that reward phone companies for holding down their costs, the savings will drop after 1995, an FCC official said.

“What the commission did was to not deliver the rate reductions that were expected,” said Brian Moir, a Washington lobbyist who heads a coalition of business and consumers groups that sought bigger reductions. “We should have had reductions in excess of $2.5 billion.”

Susan Ness, the lone FCC commissioner to dissent in Thursday’s decision, also expressed unhappiness over the ruling: “In my judgment, the ruling adopted today . . . shortchanges the interests of consumers.” Ness added that the ruling “will lead directly to (long-distance) carriers paying more than they should for interstate access services” and that it will also produce “similarly adverse impacts on consumers.”

The 4-1 vote came after a bitter battle between local phone companies and consumers, businesses and long-distance carriers who contended that local phone companies did not deserve $23 billion a year--or about 45% of all long-distance revenue--for simply carrying toll calls on the last leg of the journey.

Both the regional Bell companies and some long-distance carriers diplomatically called the FCC ruling a “step in the right direction.” But they remained far apart on what they consider the optimum solution.

“We believe the access charges are priced far above what it actually costs the Bells to provide access,” said MCI spokeswoman Pam Small.

The Chicago-based Baby Bell phone company Ameritech said in a statement: “We will be watching with interest to see if the long-distance companies pass these reductions on to all of their customers.”

Long-distance companies currently pay seven cents a minute in access charges, which total about $23 billion per year. The fees are split between the local phone company that begins the call and the company that completes it at the other end.

Under the rules adopted Thursday, however, long-distance companies will save about $1 billion this year and smaller amounts in subsequent years, depending on which of three FCC rate schemes a local phone company chooses to be governed by.

AT&T; spokesman Herb Linnen said the average long-distance phone bill for its customers is $17 a month. Based on that figure, the FCC’s rollback of long-distance access fees would produce a monthly savings of less than 50 cents. But Linnen noted that historically, AT&T; has reduced long-distance costs by an amount greater than any reductions in long-distance access fees.

The fees have been the focus of an intense lobbying campaign ever since the FCC abandoned traditional telephone rate regulation in 1990 and moved to encourage phone companies to operate more efficiently by capping long-distance access fees.

The agency’s vote Thursday modifies a complex formula designed to yield an 11.25% yearly profit margin and discourage phone companies from overbuilding their networks to justify rate increases. Under the old rules, phone companies were required to share some of their excess earnings with ratepayers.

The new rules retain the 11.25% profit ceiling, but phone companies can now choose not to share their excess earnings if they give long-distance companies a bigger upfront break on access fees.

Consumer groups and long-distance companies had claimed that long-distance customers are being overcharged $2.5 billion a year. They had lobbied the FCC to place a 10% ceiling on phone company earnings and to adjust the price cap formula so that consumers would get all excess profits.