American Telephone & Telegraph Co. will have to seek government approval for a higher earnings rate or reduce long-distance toll rates if the firm's recent levels of profitability continue much longer, a company spokesman indicated yesterday.
The telephone company currently is authorized by the Federal Communications Commission to earn an interstate rate of return that falls within a range of 9.5 percent to 10 percent, a level established in 1976.
Earlier this year, however, AT&T's return rate had exceeded the 10 percent ceiling. For the 12 months ended Nov. 30, the company earned 9.65 percent on an average total capital investment of about $82 billion - but that percentage was reduced by AT&T's decision to set aside $213 million of profits since 1974, because of a California refund and rate reduction order.
Without this extraordinary reduction in earnings ($71 million for the latest 12 months), AT&T's rate of return was higher. According to the FCC staff the company was earning at a rate of 10.42 percent in the nine months ended Sept.30.
Because of this situation, the FCC staff has told AT&T that its earnings reflect an "apparently unlawful rate of return" and has asked the company to justify its currrent status, including monthly forecasts of rate of profit through next June.
"There is no apparent reason to believe that this situation will necessarily be corrected naturally or by current or future market conditions or that the Bell System is considering decreases in rates or other remedial actions," said FCC Common Carrier Bureau chief Lawrence Darby in a letter to AT&T.
Responding yesterday, and AT&T spokesman said the company is considering a request for higher rates of return as "an alternative." And if the level of earnings continues to produce earnings in excess of 10 percent, "we'd have to file lower (telephone) rates or seek a higher return," he stated.
However, teh spokesman continued, AT&T regards the 9.5-10 percent range permitted by the FCC as just that-a range that the company seeks to maintain, sometimes going slightly above or below. He noted that several years ago, AT&T fell below the authorized minimum while in recent months the maximum had been exceeded.
In a formal statement, AT&T said current earnings "are not excessive and certainly not unlawful. They were set three years ago under significantly different economic conditions. With continuing inflation and interest rates at near record levels, the current cost" of money is higher than the return.
For corporate bank borrowings, the prime rate this week has moved to 11 3/4 percent while recent Bell System offerings in the bond markets have cost 9.33 percent to 9.7 percent.
AT&T has pledged not to increase interstate rates next year as part of compliance with President Carter's anti-inflation program. But the company could seek to have the FCC approve a higher rate of return and keep actual rates the same as today.
The Bell System has decreased interstate rates nine times and increased them four times in the past 25 years. In the past 11 years, long distance rates have risen 10 percent while consumer prices in general doubled, AT&T said.
But the General Services Administration has told the FCC that long distance rates should be reduced by about $600 million a year and that AT&T's permitted rate of return should be sliced to about 9 percent government, is the largest telephone customer in the nation. The rate cut being sought would trim government spending by up to $10 million a year.
In a related development yesterday, the FCC authorized C&P of Virginia to increase depreciation rates by $8.9 million to an annual level of $119.9 million. The increase for C&P and several other AT&T units are designed to encourage Bell System companies to replace older equipment more quickly.