A proposal by the Federal Communications Commission to scrap a decades-old system of regulating phone company profits has run into deep trouble with Congress, consumer groups and parts of the telecommunications industry itself.
The latest sign of controversy came Monday, with disclosure that the commission has agreed to issue a new version of the so-called "price caps" plan and formally reopen public debate about it.
A personal project of commission chairman Dennis R. Patrick, the plan envisages capping rates that companies charge subscribers, replacing the current system of limiting their return on investment.
The new approach was proposed by the FCC last August, and would apply to interstate long distance traffic of American Telephone & Telegraph Co. and to the federally regulated business of the country's seven regional phone companies. All of those companies gave strong support to the proposal.
If enacted, price caps could be the most important regulatory change in years for the telecommunications industry, many analysts say. The plan has been championed by some proponents as a model for state-level regulation of local service as well.
Under the present "rate of return" system, AT&T is limited to a 12.2 percent annual return on the close to $10 billion that it has invested in its long-distance network. Under price caps, limits would be placed instead on what it can charge customers. The company would be free to make whatever profit it could manage within that framework.
Price cap advocates contend that the current system encourages AT&T and other companies to pad their investment base to increase profits. The new system, in contrast, would give the companies incentive to be more productive, helping to bring rates down, Patrick and other advocates say.
"A convincing case can be made that the public is not being well served" by the current system, says AT&T spokesman Herb Linnen.
But some of the plan's opponents argue it would result in higher profits for monopolistic companies and little or no benefit to users. Others say they are willing to consider the FCC's plan, but contend that the commission has never presented detailed information on how caps would work or why it is so sure things would improve.
Such criticism has been voiced by various nonregulated telecommunications companies, consumer and business user groups and some members of Congress. Many analysts feel that some of the nonregulated long distance companies that initially backed the plan have lately been tempering their support.
Two weeks ago, a bill was introduced in Congress that would suspend the FCC's consideration of the plan until Jan. 1 and require the FCC to give more consideration to the plan's implications.
The proposed moratorium until Jan. 1 was widely seen as a personal jab at Patrick, who has often clashed with the Hill on this and other telecommunications issues. Its imposition would probably mean any decision would be made by a new FCC chief appointed by a new administration.
On Friday, Patrick wrote to Reps. John D. Dingell (D-Mich.) and Edward J. Markey (D-Mass.), who oversee House policy on telecommunications from powerful committee posts and have expressed skepticism over the plan.
Citing a desire to promote public debate and "informed discussion with Congress," Patrick said the FCC would issue a new version of the plan and solicit more comment from the public. The commission had already received 5,000 pages of written material, he said.
The Competitive Telecommunications Association, a group that represents many of the industry's new nonregulated companies, welcomed the FCC's move. "So far we have only been able to evaluate the plan in the abstract, and in the abstract we have some serious concerns about the merits," association president Jerry McAndrews said in a statement.
Gene Kimmelman, legislative director of the Consumer Federation of America, another critical group, said the FCC officials' decision showed that "they realize that they don't have a factual record on which they can justify the elimination of rate of return regulation."