The federal judge supervising the massive reorganization of the American Telephone & Telegraph Co. sharply criticized the Federal Communications Commission, saying it was "taking advantage of the divestiture" with policies that will boost the cost of local telephone service.
U.S District Judge Harold Greene said yesterday that a December FCC ruling requiring consumers to pay an additional "access fee" for long-distance calls "jeopardizes the plan of reorganization." He added, "It is not at all clear why the FCC is working at odds with the divestiture agreement."
Conducting what is expected to be the final hearing before he rules on AT&T's reorganization plan, Greene heard testimony by top Bell System officials and opponents of the AT&T plan on how the company should ultimately be restructured.
In January 1982, AT&T agreed to divest itself of its 22 local operating companies as part of an antitrust settlement with the Department of Justice, which had accused the company of having an illegal monopoly in telecommunications. As part of the settlement, a newly reconstituted AT&T would be allowed to continue its long-distance, research and manufacturing operations, as well as compete in new markets, such as advanced data communications services and computer technology. However, it would no longer be permitted to provide local phone service.
The local operating companies would be reorganized into seven independent regional operating groups that would provide local service and also be able to sell phones to their customers.
Since the consent decree, AT&T and the Justice Department have been working out the details of the reorganization, which will go into effect Jan. 1, 1984, pending final approval by Greene.
Perhaps the most difficult aspect of the divestiture is allocating the costs of telephone service as the Bell System network is transformed from an integrated monopoly to a player in a competitive marketplace.
The long-distance access fees relate to the cost of altering local phone systems to handle multiple long-distance services, including AT&T Long Lines and such competitors as MCI Communications Corp. and Western Union's Metrofone.
In the divestiture agreement, Greene said, the costs were to be borne by long-distance carriers. Now, says Greene, "There is a shift in the FCC definition of access fees from carrier-based to consumer-based." The FCC plan could add up to $100 a year to a local telephone bill by 1986, industry observers say.
The commission's move reflects its philosphy of "cost-based" pricing. Historically, the cost of telephone service in this country has been kept low through a network of financial cross-subsidies as elaborate as the phone network itself. With divestiture, say industry sources, the commission is attempting to eliminate these cross-subsidies and have the price of phone service reflect its true cost. Many studies estimate that the cost of local phone service could quadruple over the next five years.
However, Greene stated that "universal" telephone service and access is national policy and that his decisions about the future structure of AT&T would be made with that in mind. It isn't clear how he could affect the FCC's decision.
"It is very likely that, in the event of a conflict between the FCC and the consent decree, Judge Greene may have to give way," said Philip Verveer, a telecommunications attorney and former chief of the FCC's common carrier bureau.
Several Bell System officials testified that their local companies are prepared to redesign their telephone "loops" for equal access to non-AT&T long-distance services but want their costs subsidized both by the carriers--including AT&T--and consumers.
However, the court heard differing views as to whether the operating companies, once divested, should have to contribute to any fines or penalties should AT&T lose any pending antitrust suits. Zane Barnes of Southwestern Bell argued that the operating companies should be freed of any such "contingent liabilities," while William Weiss of Illinois Bell said his regional operating group would be willing to share the burden.
Greene was also told by the Bell regional operating company officers that their companies, rather than AT&T, should be allowed to use the famous Bell logo and name as part of promotional and marketing efforts. A lawyer for Tandy Corp., a Texas-based computer and consumer telephone company, argued that it would be "false advertising" if the Bell logo were used to create the illusion that AT&T and its divested operating companies were related.
Under the existing plan, both AT&T and its operating companies may use the Bell name so long as it is tagged with the appropriate "geographic modifier," such as Illinois Bell or New England Bell.