The Federal Communications Commission is considering temporary rules that would allow regional phone companies to raise rates they charge competitors for access to their networks by as much as 15 percent, according to commission and industry sources.
Such a rule would probably lead to higher rates for the 19 million consumers and small businesses served by companies such as AT&T Corp., which take advantage of the regulated discounts to offer local phone service.
AT&T has said the rate increases would effectively force it out of the local telephone business. "The FCC assured the nation's consumers that, absent an appeal, they would preserve local telephone competition. Now it appears that won't be the case," said Leonard J. Cali, vice president of federal regulatory affairs at AT&T.
The FCC's staff proposed the rule changes after a federal court threw out regulations that required dominant local phone companies such as Verizon Communications Inc. to give deep discounts to rivals that use their networks.
The FCC put the rules in place to encourage competition in the local phone business. But in March, the U.S. Court of Appeals for the District of Columbia ruled that the FCC had failed to justify the regulations. Neither the Justice Department nor the FCC appealed the ruling, although several competitors have asked the U.S. Supreme Court to review the decision.
AT&T has already announced that because of the ruling, it will no longer market local and long-distance service in seven states. Industry analysts have noted that it will be virtually impossible for AT&T to compete unless it can offer both local and long-distance in a single package. Similar bundles have proved to be hugely successful. In just three years, Verizon which offers local and long-distance, along with other services, has become the nation's second largest long-distance company, with 16 million subscribers, bypassing both MCI and Sprint.
The proposed temporary rules would be put in place only if the agency could not finish work on permanent rules within six months. Telephone competition rules have been the subject of intense litigation for eight years and agency insiders and industry executives are skeptical that permanent rules could be developed so soon.
Under the proposal circulating among the FCC's five members, current discounts would remain in place for six months. Regional phone companies could then raise rates for consumer users by as much as $1 a month. Rates for small-business users could rise as much as 15 percent, according to officials who have seen the proposal.
The proposal would prohibit competitors from signing up new customers under the existing discounts after six months. After that first six months, new customers would pay market-based rates as much as 500 percent higher, according to some analyst estimates.
FCC Chairman Michael K. Powell and Commissioner Kathleen Q. Abernathy already support the proposed rules, sources at the commission said. Both Abernathy and Powell have entered "yes" votes for the interim rules in the agency's electronic voting system. Powell has set an Aug. 4 deadline for completing a final vote on the interim rules, the sources said.