9 phone companies seek phase-out of connect fees

Proposal to FCC suggests shifting of costs to users

August 17, 2004|By BLOOMBERG NEWS

WASHINGTON - SBC Communications Inc., AT&T Corp. and seven other U.S. telephone companies asked federal regulators to phase out most of the $37 billion of fees they pay to connect each other's calls and shift some costs to customers.

The plan presented to the Federal Communications Commission would overhaul rules for the "broken" compensation system, Gary Epstein, a former FCC official who mediated talks on the proposal, said at a news briefing.

The system includes different per-minute rates, depending on the type of call or distance, and forces long-distance providers such as AT&T to pay higher fees than local companies including SBC. Carriers say it's unfair, overly complicated and prone to legal disputes.

"It provides a flashlight path for the FCC," said Scott Cleland, chief executive of Washington researcher Precursor. Regulators need to act soon "because the old regime ends at the beginning of 2005," he said.

Other companies that support the proposal include long distance carriers MCI Inc. and Sprint Corp., and Global Crossing Ltd. and Level 3 Communications Inc., which operate fiber-optic networks. Three closely held phone carriers in Texas, Iowa and Alaska also back the plan, Epstein said. SBC is the only local-phone provider to support the changes.

AT&T spokeswoman Claudia Jones said the proposed rules would reduce some costs for the company, but did not say by what amount. SBC spokesman Michael Balmoris said the proposal would be "basically revenue-neutral" for his company.

Details filed with FCC

Details of the plan were filed with the FCC yesterday, said Epstein, an attorney in Washington at Latham & Watkins LLP. The agency had sought proposals for changes to the rules.

Under the proposal, local-phone companies would be able to charge customers as much as $10 a month per line in July 2008, from $6.50 now, said a statement issued by the companies pushing for the changes. Per-minute charges paid to competitors for connecting calls would fall to 1.75 hundredths-of-a-cent from as much as 7 cents.

Mark Cooper, research director of the Consumer Federation of America, said the changes would benefit businesses that make many calls and people who use Internet calling, which isn't subject to the monthly line charge. Consumers who don't use their phone as much would lose out, he said.

"This is just a wealth-transfer program," Cooper said.

In May, Verizon Communications Inc., the biggest regional carrier, and No. 3 BellSouth Corp. dropped out of talks on the proposal, saying it didn't adequately consider the issues of Internet-phone calls and collecting fees for the federal Universal Service Fund, which subsidizes service in rural and poor areas.

Verizon spokesman Larry Plumb and BellSouth spokesman Bill McCloskey said yesterday that their companies would review the proposal.

Effect on Internet calls

Epstein said the plan would continue support for the Universal Service Fund and put Internet-call traffic on the same cost footing as traditional calling.

Legg Mason Wood Walker Inc. analysts said in a May report that phone companies paid each other more than $37 billion in 2002 to transmit calls, costs that accounted for 25 percent of the Bells' revenue and 30 percent of revenue of the long-distance companies.

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