Congress should consider a form of "phone stamps" to low-income telephone users if phone rates rise too rapidly following the break-up of the Bell system next year, industry executives said yesterday.
If rate increases cause hardship, then some agency should "target a subsidy to the needy," Charles L. Brown, chairman of American Telephone & Telegraph Corp. told a joint Congressional committee.
"MCI believes that if local rate increases threaten the widespread availability of residential telephone service--which is by no means certain--then the solution should be a program that targets subsidies directly to those in need," testified William G. McGowan, chairman of MCI Communications Corp., AT&T's largest long-distance competitor.
Their testimony yesterday came on the second day of joint House and Senate Commerce Committee hearings on the AT&T divestiture. With the almost certain break-up of the Bell System less than six months away, Congress is now scrambling to draft legislation to try to minimize its impact on consumers, particularly on the poor.
"Our responsibility in Congress is to make sure that FCC decisions do not unnecessarily contribute to the upward pressure on telephone rates," said Rep. Timothy E. Wirth (D-Colo.), chairman of the House subcommittee on Telecommunications, Consumer Protection and Finance.
"We do not believe that hasty Congressional action is necessary," contended MCI's McGowan.
The commission ruled Wednesday that consumers and business would have to begin paying a monthly "access charge" for long-distance telephone service next year. Arguing that long-distance phone revenues should not be used to subsidize the costs of local phone service, the FCC proposed to phase out the subsidy and phase in access charges that will initially cost residential subscribers $2 a month and business subscribers $6 a month, with further increases phased in over the next six years.
Both the House and Senate have bills pending to continue the long-distance to local service subsidy.
Though the focus of yesterday's hearing was ostensibly on the FCC's decision, the testimony and questions swept over the broad span of telecommunications policy issues.
Industry leaders testified that, as a result of the AT&T divestiture and the commission's push for deregulation, both the cost and price of service would change radically.
"The idea of injecting competition into a monopoly framework," AT&T's Brown testified, "makes it inevitable that prices be driven towards cost."
Brown emphasized that a key reason for the creation of the Bell System monopoly was to establish a network of subsidies that would enable prices to be kept relatively low. This would allow the goal of "universal service" and access to the system to be more easily achieved. Competition, he said, shatters that network of subsidies.
Brown and other industry leaders argued that if legislation to keep the subsidy were passed, it would encourage people to "bypass" the existing phone network with new technologies such as satellite and private line networks. This would cause, they said, the gradual disintegration of the national telephone network and cause local phone rates to rise as local phone companies sought to compensate for their loss of revenues by raising prices.
"The tide of bypass is rising, not falling," said Brown, "and the harm will increase as long as this irrational subsidy exists."
The proposed legislation requires bypassers to pay a fee to local phone companies. However, congressional aides say that the volume of bypass communications is unknown. Moreover, industry experts point out that it is difficult to define just what a bypass is. For example, Western Union's Mailgram service or Citizens' Band radio could qualify as bypass technologies.
Moreover, said Wirth, the access charge is just one of several elements affecting the rise in phone rates. The most important one, he said, will be the rate requests made by the local phone companies to state utility commissions after divestiture. Their actions, he said, are beyond Congress's domain.
However, when the divestiture transition is completed, asserts a congressional staffer, Congress may decided to "revisit the telecommunications area" and pass broader legislation.