"Phone Companies Say They'll Impose Fee To Cover U.S. Internet Program"
5-29-98 NY Times
WASHINGTON -- In a move criticized by regulators, AT&T and MCI on Thursday said they would impose a new fee on residential long-distance calls to recover the federal subsidies they pay to finance low-cost phone service and Internet hookups for schools and libraries.
The announcements came as the Federal Communications Commission prepares to make decisions both on how much money to increase the subsidy program, called the Universal Service Fund, and whether to restructure the way the fund is collected, to shift some of the burden from long-distance carriers, who say they unfairly pay more into the fund than local phone companies.
They also came just a few months after the FCC's chairman,
William Kennard, sent the top long-distance companies a letter asking for proof that they were passing along to customers, not pocketing, profits from reduced access charges the FCC granted them last year. Those charges, which long-distance carriers pay local phone companies to complete their calls, were reduced in an effort to offset the increased Universal Fund subsidies, which could amount to $2.2 billion.
"AT&T's announcement is premature, unwarranted and inconsistent with its own public proposals to the FCC," Kennard said in a statement on Thursday. "This announcement suggests that AT&T will
raise rates to pay for universal service. But consumers are enjoying the lowest long-distance rates in history."
But an AT&T spokesman, Jim McGann, said rates are not being affected. The company simply plans to begin passing on the new fees as an additional item on customers' bills.
"Reductions in access charges don't come close to covering our obligation to the fund," he said. "Our obligation to the fund as a whole this is about $1.6 billion for AT&T. That's our obligation. We
can't eat that charge."
The AT&T fee, beginning in July, is to be based on a percentage of residential customers' monthly bills for long-distance calls. Thus, a customer with no long-distance calls in a billing period would not pay the extra fee.
AT&T has 80 million residential customers. Beginning next month they will be assessed 5 percent of total monthly charges for interstate long-distance and international calls, and 1.8 percent of monthly charges for in-state long-distance, McGann said.
Since the beginning of the year, McGann said, AT&T has been charging business customers 4.9 percent to cover the Universal Service Fund obligation. But it has been covering the assessment on residential calls from its profits.
"We can't afford to do that anymore," he said. "We're are putting a charge on the bill to recover that cost."
McGann said the company announced the new fee now, just days before an expected decision by the FCC on the size of the Universal Service Fund for the rest of the year, because it needed to start imposing the charge on June calls that are billed in July, the start of a new quarter.
If the FCC decides to ease the burden on long-distance carriers, either through the size of the fund, a "drastic" reduction in access charges or by shifting more of the burden to other carriers, McGann
said, the company will make the proper adjustments in the amount it passes on to customers.
"This is a calculation based on the numbers as we know them," McGann said.
MCI on Thursday was also preparing to file notice that it, too, would begin imposing the new fee on long-distance residential calls next month, said Claire Hassett, a spokeswoman for the company in Washington.
Although the details on the new assessment were still being worked out Thursday afternoon, the timing was expected to be the same as AT&T's. MCI's annual obligation to the fund is $107 million, she said.
Gene Kimmelman, co-director of the Consumers Union's Washington office, predicted other phone companies would follow suit.
His group, along with a group called Consumer Federation, last week asked the FCC to delay imposing the new subsidies, saying federal regulators have broken their promise not to penalize
residential phone customers with extra fees as they begin financing a program providing Internet hookups for the nation's schools, libraries and rural health care providers. The new subsidies would expand the Universal Fund program beyond its traditional focus of providing more affordable local phone service to low income and rural customers.
"How can consumers trust a federal agency that disregards its public commitment to prevent rate increases, and then transforms that commitment to nothing more than an effort to avoid 'undue' price
hikes?" asked Kimmelman and Mark Cooper of Consumer Federation of America in a letter to Kennard.
According to the consumer advocates, above-market pricing for interstate access charges currently accounts for more than $8 billion in false charges to consumers. If these inappropriate charges were eliminated, the result would be enough to supply all the new revenue necessary for Universal Service programs, plus a substantial long-distance rate reduction, they said.
But Larry Irving, the assistant commerce secretary who serves as President Clinton's principal adviser on telecommunications and information policy, opposes any delay in carrying out the new
programs to connect schools, libraries and health centers through the subsidies.
"Vital public support for assuring fair access to telecommunications is a long-standing governmental policy," Irving said in his own letter to Kennard. "We believe that the cost to the industry for support of schools and libraries has been balanced by reductions in access charges."
"The Commission should endeavor to fund the program with no additional costs or pass through to the customers. In any event, the cost to telecommunications carriers to fund discounts to schools, libraries, and rural health care centers at the current demand levels is no more than $1 per line per month, and therefore, under no circumstances, should consumers be charged any more."
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