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Consumers Would Pay In Phone Proposal

By Christopher Stern
Washington Post Staff Writer
Tuesday, August 17, 2004; Page E01

A proposal backed by a coalition of telephone carriers would cut billions of dollars in fees owed by long-distance companies to regional phone giants but would allow the regional companies to make up some of the difference by raising monthly phone bills for millions of consumers.

The effort to revamp a system that some claim has been rendered irrelevant by technology and competition would also make mobile and Internet-based phone companies help subsidize service in rural and poor areas -- a burden that has fallen until now on traditional telephone companies.

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The plan's supporters, including MCI Inc. and SBC Communications Inc., have briefed the Federal Communications Commission on the proposal in the hope it will become a blueprint for regulators as they overhaul a complex network of payments between local and long-distance companies.

The payment system was put in place after the breakup of AT&T Corp. in 1984, which divided Ma Bell's monopoly among a series of local carriers and a group of companies that provided long-distance service. It was designed to ensure that the regional telephone companies, such as SBC and Verizon Communications Inc., were compensated for connecting long-distance customers to their local networks.

But in the past 20 years, the telephone industry has gone through a massive transformation, including the explosive growth in the use of mobile phones and rule changes that have introduced new competitors into the local business.

"The present system is crazy, it's broken, and it doesn't work," said Gary M. Epstein, a telecommunications attorney who spearheaded the effort to reach a consensus among telephone companies during the past year.

At the heart of the proposal is a plan to do away with billions of dollars in so-called access charges, which long-distance companies such as MCI must pay regional companies such as Verizon to connect their customers to the local network. In return for giving up those payments from long-distance companies, the regional phone companies will be allowed to raise basic phone rates over the next several years.

Regulations allow regional phone companies to charge customers a basic fee of $6.50 for each telephone line. The proposal would allow companies to boost that fee to $10 over the next four years.

Another major point of the plan would expand the so-called Universal Service Fund to allow companies such as BellSouth Corp. and SBC to receive subsidies to improve service in rural and low-income areas. Only traditional phone companies are required to contribute to the Universal Service Fund, but under the proposal, cable and Internet-based phone services would also contribute. The obligations of wireless providers would increase. The Universal Service Fund, which raises about $7 billion a year, could see a $2.5 billion increase in revenue, the plan's supporters say.

The plan has the support of nine companies, a group that calls itself the Intercarrier Compensation Forum. The group includes MCI, SBC, AT&T Corp., Sprint Corp and Level 3 Communications Inc. The FCC has been eager to see the proposal. "What we have seen so far is very comprehensive and gives us a lot to chew on," said Jeff Carlisle, acting chief of the Wireline Competition Bureau, a division of the FCC that oversees the telephone industry. Although FCC officials have been briefed on the proposal, it is has not been filed with the agency. Sources familiar with the plan say a filing will be made within two weeks.

The plan's authors said yesterday that it may face a tough fight at the agency. The Intercarrier Compensation Forum started with a total of 18 companies, but over the past year, half of the members, including Verizon and BellSouth, dropped out because they did not agree with the direction of the negotiations. It could also face opposition from wireless companies and state regulators who may think it preempts their authority to set local rates.


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