THE USUAL SHRIEKS of protest arose last week when the Federal Communications Commission took its decision on phone rates before a couple of congressional committees. If you had been there, you might have got the impression that the rapacious FCC was determined to raise your telephone bill, with nothing to stop it but a few courageous congressmen sworn to protect the poor and defenseless. Can that be true?
No, of course not. The issue is the subsidy that the long-distance phone rates have traditionally conferred on the local service. Changes in communications technology now make it necessary to end that subsidy, a process that is never painless.
The subsidy in this case is very large--as the FCC calculates it, about $10.7 billion a year, or nearly 40 percent of total long-distance revenues. For decades government regulators have deliberately kept long-distance service overpriced and local service underpriced with the intention of enabling everyone to afford a phone. The idea worked tolerably well as long as there was only one national unified system, AT&T. But now other companies are competing with AT&T for its long-distance business. If AT&T is forced to continue the overcharges, its competitors will eat it up. If the regulators force the competitors to help carry the overcharges, the big customers will shift to private systems beyond the reach of the regulators. Many large companies already operate their own systems, and they are proliferating rapidly.
The FCC has concluded, correctly, that it's time to end the whole tottering structure of overcharges and subsidies. It wants to do that gradually, over the next six years, starting with an increase next January of $2 a month for each residential line. The FCC, incidentally, has made its own contribution to the confusion by calling this increase an "access" charge. It's not. It's simply the first step in bringing the price of local service up to the full cost, as the subsidy declines.
A lot of congressmen want to write legislation to continue subsidizing local phone bills. It won't work. The technology will keep outrunning them. If they want to address the small number of genuine hardship cases, the way to do it is through a small increase in the present federal tax on phone service. But, as the FCC points out, the cost of phone service after inflation has dropped 30 percent over the past decade. While the price of local service goes up, the price of long-distance calls will keep coming down. After all these years the subsidy evokes a certain sentimental affection. But as serious social policy the case for it has long since evaporated.