Major long-distance and local telephone companies announced a cease-fire yesterday in one of the longest and most contentious debates of the telecommunications industry: how to finance long-distance companies' use of the local firms' wires that connect to homes and businesses.
The coalition of six top companies, which include AT&T Corp., Bell Atlantic Corp. and SBC Communications Inc., filed a proposal with federal regulators last Thursday to revise the complex web of billions of dollars of payments that now flows from long-distance companies to local companies.
The companies said that over time it would result in long-distance calls becoming cheaper, but prices rising for local service. Its net effect, however, would keep service affordable and help bring about new competition in the industry, the coalition said. The coalition also includes Sprint Corp., BellSouth Corp. and GTE Corp.
For the plan to take effect, the Federal Communications Commission must approve it. The proposal already faces opposition from consumer groups and little support from long-distance and local carriers that didn't take part in the coalition.
FCC spokeswoman Linda Paris declined comment on the package but said the agency is taking it seriously and would put it out for public comment this week. The FCC has been encouraging the industry to come to a consensus.
The companies represented in the coalition acknowledge this proposal isn't the ideal solution, but call it a "finely balanced" middle ground.
"This proposal brings together people who were at war for 20 years," said John Nakahata, the coalition's spokesman. "What makes this plan work is that everyone has given something up." Nakahata is a Washington lawyer and former FCC official who helped facilitate the deal during five months of negotiation.
"This [proposal] could be easy to criticize," said Scott Cleland, a telecom analyst with the Legg Mason Precursor Group in Washington. "However, what are the critics' alternatives that could be implemented? Everybody should be amazed that these warring parties were able to come to consensus."
Under the plan, long-distance companies would enjoy a $5.6 billion annual reduction in the fees they pay local companies for using their lines to begin and end long-distance calls. Local companies would increase special fees they collect directly from customers and gain greater stability in their revenue.
Consumer groups have raised concern that the $5.6 billion that long-distance companies would save annually won't translate into lower prices for the majority of long-distance customers. "They've got a sweetheart deal. There's something in it for each of the industry players, but consumers are dramatically shortchanged," said Gene Kimmelman, co-director of the Consumers Union's Washington office.
For example, he said, long-distance companies could choose to pass on the savings only to business and high-volume residential customers.
But Frank Gumper, director of federal regulatory affairs for Bell Atlantic, said that in general, the savings from lower long-distance rates for those customers would dramatically exceed the amount of increases in local bills.
Consumer advocates expressed concern that customers who made only a few long-distance calls per month would pay more in new local charges than they saved in lower long-distance rates.
The plan also calls for adding $650 million to a federal fund to subsidize service in places where it is costly to provide local service, notably rural areas. Telephone companies provide that money and could pass the cost on to their customers.
Initially, the coalition of phone companies also included MCI WorldCom Inc., US West Inc. and Ameritech Corp., but those firms decided not to sign on to the agreement. MCI WorldCom declined to say why it did not support the agreement, but said it will comment when the FCC posts the plan for public comment.
Coalition members say they are confident more phone companies will come on board after conducting their own analysis of the proposal.