WASHINGTON -- The Federal Communications Commission pleased virtually nobody yesterday as it ordered local phone companies to cut by $1 billion a year the rates they charge long-distance companies to complete their interstate calls.
The FCC said it expected the savings to be passed directly to consumers. But consumer advocates said the cut was far too small.
The FCC said its revised regulatory scheme for so-called "access charges" corrects a 1990 formula that wound up shortchanging long-distance companies. But AT&T; Corp. and MCI Communications Corp. said the commission repeated its errors in devising a new formula.
The FCC said the decision gives local phone companies incentives to improve their efficiencies. But the head of the U.S. Telephone Association called the decision "an incentive killer" that was "lining the pockets" of the long-distance carriers.
"It's encouraging that both sides hate it," said Tom Brennan, senior consultant for TeleChoice Inc. in Verona, N.J. "That tells me it's a pretty good compromise, at least for the short term."
Mr. Brennan estimated that for residential customers the cuts will work out to about one-half a cent per minute of long-distance calling. "To the individual consumer, it's not a big deal," he said.
But for Bell Atlantic Corp., which stands to take an annual hit of about $100 million because of the decision, it's a very big deal. The company immediately vowed to appeal the decision to federal court.
"It looks like March madness isn't confined to the basketball court this year," said Bell Atlantic spokesman Eric Rabe.
Access charges, which account for an estimated 45 cents of each dollar spent on long-distance calling, have been a source of contention between the long-distance companies and local exchange carriers (LECs) since the breakup of AT&T; in 1984.
A typical long-distance call from Baltimore to Los Angeles originates in Bell Atlantic's system, is passed to a long-distance carrier such as AT&T; or MCI, and is completed on the other end by Pacific Telesis, the regional Bell company in California.
The long-distance companies pay the local companies dearly for their customers' use of local phone lines -- an estimated $20 billion to $30 billion a year. They seldom have a choice of which local companies they deal with because most LECs are monopolies in their markets. That's why the FCC regulates those rates.
Yesterday's FCC decision arose from a review of the price caps it imposed on local telephone companies' access charges in 1990. The caps include an inflation adjustment each year, which is offset by a "productivity factor" to account for the fact that technology is cutting the cost of operating a phone network.
In devising a new, "interim" formula, the commission decided yesterday in a 4-1 vote that the productivity factors in the price caps it adopted in 1990 underestimated the productivity gains local phone companies could achieve. It adopted a plan it estimated would save consumers $1 billion annually -- considerably less than the $2 billion that consumer groups and long-distance carriers had advocated.
The four commissioners who voted for the plan said it represents a fair balance between the interests of consumers, long-distance carriers and the local phone companies.
But Commissioner Susan Ness dissented, charging that the ruling "materially underestimates the productivity gains that can reasonably be expected of the large telephone companies."
Bradley Stillman, legislative director of the Consumer Federation of America, agreed with Ms. Ness. "Consumers are probably going to end up seeing about one-third of what they should be getting."
But Bell Atlantic's Mr. Rabe said that because Bell Atlantic has already realized most of the gains it can through technology, it will have to take harsh steps to meet the FCC's productivity targets.
"You either cut salaries or you lay people off," he said.