FCC issues local phone ground rules Path now cleared for a donnybrook among competitors; Legal walls tumbling; 'Unparalleled changes' expected in the way people communicate


In a move likely to change the way most Americans communicate, the Federal Communications Commission yesterday passed rules knocking down legal walls between the local phone business and the long-distance, cable TV and cellular phone industries, paving the way for a competitive donnybrook the likes of which American communications has never seen.

"Today marks the end of the pre-competitive era in local telephone service," FCC Commissioner James H. Quello said. "Unparalleled changes in the range of telecommunications services available to you are going to come."

The rules implement part of the telecommunications reform law President Clinton signed Feb. 8, the first major changes in local phone laws since the 1930s.

The goal is to let all telecommunications companies freely enter one another's traditional industries once regulators tear down barriers to competition that make local phone carriers like Bell Atlantic Corp. potent monopolies.

The law is based on a view shared by the Clinton administration and the GOP Congress that more competition in communications will mean more innovation in industries critical to building a healthy post-industrial economy -- and lower costs for families, who industry executives say will soon spend $2,000 a year or more on services affected by the law.

The clearest winner yesterday was the cellular phone industry, whose chief lobbyist was ecstatic after the commission voted rules designed to slash the fees that local phone companies get to complete calls between cell phones and traditional telephones from as high as 5 cents per minute to between 0.2 cent and 0.4 cent.

That move will save the $20 billion cellular phone industry $1 billion a year, said Thomas E. Wheeler, president of the Cellular Telecommunications Industry Association.

Wheeler said the industry is likely to pass all of the gain on to consumers, and invest heavily in new equipment that will make cellular phones an everyday way to communicate instead of a static-plagued technology that people use in cars and emergencies.

"The question is how to make it good enough to meet what people expect from regular phone service," Wheeler said. "It's not a technological issue; it has been an economic issue."

The results were more ambiguous for Bell operating companies and big long-distance carriers such as AT&T; Corp. and MCI Communications Corp. Both sides won some key issues and lost some, and both industries were spinning hard later in the day, though many neutral observers said the traditional local phone companies got the worst part of the deal.

"Initially, the long-distance carriers won," said Chris Landes, a consultant at TeleChoice Inc. in Verona, N.J. "The cell phone manufacturers are also dancing because it means they can get much higher [market] penetration."

Bell companies prevailed -- at least temporarily -- on keeping the fees long-distance carriers pay them for connecting long-distance calls from a customer's phone to the long-distance companies' call-handling networks. That fee is a key part of the subsidy scheme the phone monopolies have used to keep the cost of local service low, and they feared that its loss would hand them a financial catastrophe in serving less-populated rural areas.

The commission said it would revisit the fees by next year, as part of a plan to keep up universal phone service after competition. Consumer advocates have warned that local service could spiral beyond the reach of some individuals as companies compete for more profitable business and urban markets and withdraw traditional help for less profitable customers.

But the long-distance carriers prevailed on another issue, which is how much they will have to pay Bell Atlantic to buy local service in bulk.

AT&T; and MCI plan to enter the local phone business by initially using traditional monopolies as wholesale suppliers and reselling the service to consumers.

The local phone companies were hoping that the FCC would tell them they did not have to provide a large wholesale discount, or that the FCC would leave the issue to state regulators. Instead, the FCC set up rules for states to follow in setting the discounts, and set a discount range of 17 percent to 25 percent for when states don't have enough information to apply the new rules.

The new law was designed to foster competition as soon as possible by giving new competitors a chance to choose between building their own call-handling networks, buying service from traditional monopolies such as Bell Atlantic Corp. or building partial networks and buying other services from the Baby Bells.

Edward D. Young III, Bell Atlantic's vice president for external affairs, said the company believes it can hold down the wholesale discounts it has to offer new local phone companies when the issue goes to state regulators such as the Maryland Public Service Commission. And he said the company was happy to see access fees maintained.

"You have to make sure you take care of the subsidies embedded in rates before you open the market to competition," he said. "They preserved that."

Pub Date: 8/02/96

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