Reaching out by telephone gets harder on the little guy
Starting Saturday, reaching out and touching someone will cost you an extra dollar. It's not much money, but the ``access fee'' on your June phone bill -- and every month thereafter -- is a signpost on the road to deregulation. Along the way the little guy is shouldering more of the burden.
Residents and small businesses are paying more for telephone service. Large companies are starting to pay less. Among long-distance telephone companies, AT&T's feisty rivals are losing some of their discounts, and AT&T is getting more aggressive.
As of June 1, every home and business with one phone line will pay the local phone company a $1 monthly fee for linking the phone to a long-distance network. The charge will be doubled in June of 1986 and could be raised again after that. States may also apply to the Federal Communications Commission to tack on 35 cents more a month, but none has done so yet, the FCC says. Companies using more than one telephone line began paying a $6 access fee for each line a year ago.
Throughout telephone history, long-distance rates -- borne mainly by big business, which does the bulk of long-distance calling -- have been artificially high to subsidize local rates. This has allowed almost everyone (92 percent of homes) to have a phone. When AT&T was split away from local companies in 1984, the subsidy had to end; the residential access charge is part of the shift of the burden from the big telephone user (business) to the smaller one.
People and businesses using AT&T for their long-distance service will see their rates drop 5.6 percent starting Saturday. But the benefits will be uneven: Large corporations that make a lot of calls will save the most. People who spend more than $17.85 a month on long-distance calls will also save money. Most people, however, spend less than $10 a month on long-distance calls, and they will be paying higher monthly bills.
Still, critics contend that the $1 fee, plus projected local rate increases, could be the last straw for millions of people wanting phone service.
``One dollar by itself isn't the end of the world,'' says Gene Kimmelman, legislative director of Consumer Federation of America. ``But add it to other rate increases, and you create a burden for low- or fixed-income people who will either give up their phone or keep the phone and give up other necessities like food and clothing.''
The Consumer Federation of America and the US Public Interest Research Group, a Ralph Nader organization, estimate that local phone-rate increases since divestiture in January 1984 will force 6 million people to forgo phone service by the end of 1986, either by canceling or by deciding not to get a phone. A separate analysis indicates that if states do not waive the $1 access charge being added Saturday -- which is unlikely -- 675,000 more people will forgo a phone by June 1986.
This view is ``whistling in the wind, a worst-case scenario,'' says Joe Gagen, spokesman for the US Telephone Association, which represents most local telephone companies. ``No way will the telephone industry watch 6 million people drop their phone service.''
Despite the controversy, access charges appear to be handing AT&T a public-relations victory as it tries to stave off competitors. AT&T wins points for dropping its rates, but loses no money by doing so, since local companies are lowering their charges to long-distance companies as they get the access fee directly from residents.
AT&T's lower rates puts the squeeze on AT&T's rivals. They may feel impelled to lower their rates to stay competitive -- an unsavory prospect for a group in which all but one company (MCI) are losing money.
AT&T, for so long a regulated company, has begun to shed its ``bureaucratic mentality,'' one analyst says. It has pared down its work force by 9,000 last year, added more aggressive managers, and launched an advertising and marketing assault that smaller rivals cannot afford.
Picking Cliff Robertson as its commercial spokesman was a first step. The movie star has a reputation for honesty -- he risked his career by exposing check forgeries in the upper echelons of Hollywood -- and is lending that image to the giant phone company.
More threatening to the alternative carriers are AT&T's marketing programs. ``Reach Out America'' allows people to call anywhere in the US for one hour during nights and weekends for $10 a month. ``Opportunity Calling'' gives customers credits toward consumer items for using long-distance service. AT&T's most recent plan, ``PRO America,'' would give small and medium-size businesses a 15 percent discount. To the relief of AT&T's rivals, the FCC has put PRO America on hold while it determines whether AT&T's rates are below cost.
In addition, AT&T's rivals are losing their advantage as ``equal access'' spreads across the country. Until recently, long-distance carriers like MCI and GTE/Sprint got a 55 percent discount for hooking into local phone companies; they passed on much of the discount to you, the caller. But you had to dial a long access code and often had a poor connection.
Equal access gives all companies the same hookup (thus eliminating the access code and the poor connection), but it ends the discount for AT&T's rivals. About 20 percent of phones today have equal access, says the FCC; the process is scheduled to be completed by 1987.
Being on an equal footing is alarming to the smaller long-distance companies, analysts say. ``So far they have been competing only on the basis of price, but they can't do that for long,'' says David Wyss, financial economist at Data Resources Inc., a forecasting firm. ``In the long run, AT&T's volume of business and vast network give it a cost advantage,'' he says. He does not expect more than three or four long-distance companies to survive.
As Gulliver begins to stir, some on Capitol Hill are trying to fasten the strings. Arguing that AT&T's rivals are not yet strong enough to compete, Rep. John Bryant (D) of Texas has introduced a bill that would retain the rivals' 55 percent discount until AT&T's share of the market falls below 60 percent. Analysts estimate AT&T has about 85 percent of the market.
Because of the piecemeal way that equal access is being put into place -- with one part of a city having it but not another -- the small long-distance companies ``will be incurring higher costs of equal access without getting the benefits from it,'' says an aide to Mr. Bryant. She says that it's expensive and ineffective to advertise on television or radio, since one part of the audience would have equal access and another would not. But direct-mail marketing is difficult, because AT&T walked away with its customer lists and doesn't have to share them.
A study by the consulting firm Booz, Allen & Hamilton and commissioned by GTE/Sprint estimates that under the current transition to deregulation, by 1989 the alternative carriers may not be making enough profit to stay in business. Higher costs for capital investment and declining rates because of competition, the study says, will squeeze profit margins to an unpalatable 2.6 percent.
AT&T got something of a legal victory this week. On Tuesday, a jury ruled that AT&T and the regional Bell companies must pay MCI $37.8 million in damages ($113.3 million after being tripled under federal antitrust law) for anticompetitive behavior. That is a fraction of the $600 million MCI was awarded in 1980 at the lower-court level. MCI has indicated it may appeal the case. In another antitrust suit against AT&T, scheduled to go to court in 1986, MCI is seeking $5 billion in damages.