FCC frees pricing for 8 large phone companies

September 20, 1990|By New York Times News Service

WASHINGTON -- The FCC has given Bell Atlantic and the nation's seven other big providers of local telephone service greater freedom to raise or lower the prices they charge long-distance carriers for completing interstate calls.

The move signals a fundamental shift in the economic philosophy of U.S. regulation. The charges account for about half the cost of placing a long-distance call.

But the Federal Communications Commission declined to estimate the effect of yesterday's decision on long-distance carriers, and ultimately on consumers, because the charges will now depend more closely on the productivity of the local telephone companies.

Some telephone user groups criticized the move, while the local phone companies praised it.

Gene Kimmelman, telecommunications expert at the Consumer Federation of America, said the productivity incentives might not encourage adequate investment in the telephone network.

And he said the price caps mandated by the new system, which effectively require a company to lower the price of one service if it raises the price of another, could allow prices to rise faster than under the old system, which was based wholly on what is known as rate-of-return regulation.

But Frank Gumper, the managing director of regulatory policy at Nynex Corp., the parent of New York Telephone, said consumers would benefit because Nynex would be able to operate more efficiently and pass on the savings.

The price caps apply only to GTE Corp. and the seven regional Bell companies, including Bell Atlantic Corp. and Nynex, created by the breakup of American Telephone & Telegraph Co. on Jan. 1, 1984.

Together, these eight companies own 85 percent of the nation's local telephone lines.

The FCC decided that each of the roughly 1,300 smaller companies that own the other 15 percent could choose annually whether to switch to price-cap regulation or to stay with rate of return.

The new regulatory system will take effect Jan. 1 and will last at least four years. The commission ordered that the price caps increase each year by less than the local phone companies had expected but more than AT&T and consumer groups had sought.

The commission will impose price ceilings for three broad categories of services that the local phone companies provide in conveying calls from businesses and homes to the nearest long-distance switching centers.

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