WASHINGTON -- The Federal Communications Commission will order the nation's local telephone companies today to reduce the access charges they impose on long-distance carriers by about $1 billion a year for the next few years, FCC officials said yesterday.
The rate cuts could translate into one of the biggest single reductions in long-distance telephone prices since the breakup of the Bell System 10 years ago. Consumers are likely to feel some of the impact in lower long-distance prices, although long-distance carriers like AT&T;, MCI and Sprint will try to keep as much of the reduction for themselves as the market will allow.
The access charges that long-distance carriers pay to connect to local telephone networks constitute about 40 percent of the cost of a long-distance call and total about $27 billion a year nationwide. Access charges also are the biggest source of profit for local telephone companies, and the rates have come down very gradually over the last decade.
A typical long-distance call from New York to Los Angeles costs from 10 cents to 27 cents a minute, depending on the time of day and a customer's discounts. But long-distance carriers must pay about 4 cents a minute to each local phone company on either end of the conversation -- 8 cents a minute all told.
Consumer advocacy groups and the long-distance carriers have been lobbying the government for months to push these prices down sharply, charging that the Bell companies have been able to enrich themselves unfairly.
Federal Communications Commission officials, speaking on the condition of anonymity, said yesterday that the new rules would reduce these local charges about 4 percent a year for the next few years and would begin to take effect this summer. That reduction would roughly double the average decline in access charges in recent years, they said.
The FCC action is intended to be part of a grand bargain in which the local telephone companies, in exchange for reducing access charges, would be free to keep more of the profits they can make from long-distance access services by cutting their own expenses. Until now, the FCC has put a cap on the profits the local companies can make from these access services.
In addition, the agency plans to develop rules over the next few months that would give the local companies much greater flexibility in the way they allocate costs in pricing various services.
"The goal here is to reinvigorate competition among long-distance companies by reducing the cost of access," said Reed E. Hundt, chairman of the commission, who refused to discuss details of the plan.
Executives at the Bell companies were hesitant to comment on the new rules before they were made public officially. But they were clearly unhappy, in part because they contend that the FCC was taking only modest initial steps to let them retain more of the profits they generate through cost-cutting.
"It's unfair," said one executive, complaining that the Bells have already reduced their access charges significantly over the last four years. Frank Gumper, vice president for federal regulatory planning at the Nynex Corp., added: "This will obviously cause us to reduce some of our rates faster than we had planned."
The new rules also fall well short of the reductions sought by consumer groups and long-distance carriers.
"This is chicken feed," said Brian Moir, Washington counsel for the International Communications Association, a group that represents large business customers. The association, in an alliance with the Consumer Federation of America and long-distance carriers, had argued for rate cuts of about $2 billion a year.
The debate over access charges raises many of the most difficult issues swirling through the communications industry, particularly at a time when local and long-distance carriers are gearing up to invade each other's markets.
Local telephone companies, dominated by the regional Bells, concede that many of their prices are artificially high -- in part because of regulatory policy and in part because they still have a near monopoly over much of the local telephone market.
Commission officials, prodded by consumer groups and long-distance companies, have wanted to force those prices down.
The new rules will modify a regulatory system of price caps that were adopted four years ago. Under price caps, regulators impose a ceiling on the prices that a telephone company is allowed to charge and permit the local telephone companies to retain more of the profits they can realize through cutting costs.
But under those rules, telephone companies that earn a rate of return higher than 11.25 percent above their costs have to start giving back the "excess" profits in the form of subsequent rate reductions.