The Federal Communications Commission is expected today to permit American Telephone & Telegraph Co. to offer new business services to the largest users of long-distance phone lines in direct competition with local phone companies.
Most of the seven regional Bell companies oppose allowing AT&T to offer the new services because they fear they will lose billions of dollars to their former parent.
The loss would be caused by AT&T services that allow large customers to bypass the local companies and hook up directly to AT&T. The local phone companies say local rates may have to be raised to make up for the lost business.
"I don't see any real controversy in the commission" on the issue of allowing AT&T to offer the services, said one FCC source. "The commission will probably let them go into effect.
"The only significant thing about AT&T being involved is that it is such a large player," the source said. "But, it is just a matter of whether AT&T offers them or another competitor, such as MCI, offers them."
Instead of reining in AT&T, the best way to handle the situation would be to restructure local phone rates for special business connections to give pricing incentives to large companies to stay on the local network, say FCC officials.
Before hooking up big companies directly and bypassing the local phone network, AT&T plans first to ask the local units for cut-rate connections. "We are aware and concerned about the bypass threat to the industry and do not intend to be the aggressive agent for widespread bypass," AT&T Chairman C. L. Brown wrote to the presidents of the regional Bell companies in May. "We intend to continue to come first to the local company for our facility needs."
But AT&T will not reject customers who want services that do not connect to the local phone company. "We will not turn our business over to other long-distance companies where our customers require direct access to us and/or where AT&T can't get timely facilities from the local company at competitive prices," Brown said. That policy still stands, said Herbert Linnen, an AT&T spokesman.
AT&T has argued that its long-distance competitors, such as MCI and GTE/Sprint, already offer the services it is seeking to provide and that it is under pressure from large users to lower costs.
AT&T is seeking to provide two new business services. One, called Megacom, would charge a lower rate to very-high-volume long-distance customers. It would either bypass the local network through direct connections or would rely on telephone company connections at prices that would not include fees for maintaining the local network. AT&T also wants to implement a service called a "software-defined network" that allows companies to computerize their private networks in order to keep the use of regular telephone lines to a minimum.
Currently, the long-distance companies pay the local Bell companies fees to initiate and complete long-distance calls. The fees include "access" charges, which are used to maintain the local phone lines between a user and the connection to a long-distance company.
Long-distance companies, which pass the access charges on to customers, pay the fees based on the volume of long-distance calls. AT&T is the single-largest user of the local telephone network by virtue of its 85 percent share of the long-distance market. Last year, it paid local phone companies $20.6 billion for those services.
That is why local phone companies fear AT&T may be preparing to slash its prices. "If we don't somehow unload the large charges levied on big users, we are going to lose them and AT&T will be the biggest benefactor by virtue of being our largest customer," said Ron Sirch, executive director of federal regulatory matters for Nynex, a regional phone company operating in six Northeastern states.
Nynex stands to lose $1 billion out of about $10 billion in annual revenue in the next several years from bypass, and the majority of it would be lost to AT&T, he said.