THE DEVIL THAT YOU KNOW: Opponents unite on access charge reform

Interexchange carriers and customers who make many long-distance calls have the most to gain if the FCC adopts an access charge proposal submitted last week by a coalition of long-distance and incumbent local exchange carriers. Losers could include Internet telephony providers and customers who make few long-distance calls.

The industry group - which calls itself the Coalition for Affordable Local and Long-Distance Service, or CALLS - includes AT&T, Sprint, Bell Atlantic, BellSouth and GTE. The CALLS proposal applies to the 95% of U.S. access lines that are served by price cap ILECs.

Local and long-distance carriers traditionally have been on opposite sides in the access charge debate, said John Nakahata, the former FCC chief of staff who is now a partner with Harris, Wiltshire & Grannis, a law firm that consulted with the consortium on the proposal. But "what all companies recognized is that in the next five years or so, the marketplace is going to change dramatically," he said. "What's in all their interest is to take out some of the big uncertainty, and regulation has been one of the biggest pieces of uncertainty."

CALLS recommends eliminating the fixed monthly presubscribed IXC (PIC) charge beginning as soon as Jan. 1, 2000, and cutting per-minute interstate access charges from a current average of 2.3 cents a minute to 1.1 cents a minute over five years. IXCs pay both fees to ILECs to cover the cost of connecting long-distance calls and to support universal local service. Ultimately, customers foot the bill, though, as IXCs build these charges into long-distance rates or add them as line items to customer bills. The coalition estimates the value of the IXCs' eventual savings, which IXCs have promised to pass on to their customers, at $5.6 billion a year.

"We've always passed through access charge reductions," said Pete Siwenki, director of federal regulatory affairs for Sprint.

According to CALLS, the 1.1 cents a minute access charge would more accurately represent what it actually costs local carriers to originate and terminate calls for IXCs and would eliminate universal service subsidies currently embedded in access charges. Instead, universal service would be supported through an increase in the subscriber line charge (SLC) - the fixed monthly charge that customers pay ILECs. In addition, IXCs would contribute $650 million more to the high-cost universal service fund. Those funds would be allocated to ILECs, and possibly to competitive LECs (CLECS) that serve customers in areas where network costs are higher than the price of basic local service. IXCs will continue to contribute a percentage of revenues to the high-cost fund.

Consumer groups have attacked the plan, arguing that it penalizes customers by raising basic monthly rates. CALLS contends the new SLC represents little or no overall increase for most residential users. The group claims that the $5.50 a month maximum SLC proposed for Jan. 1, 2000, equals what customers pay now in SLCs and PIC charges, plus a scheduled 50 cents increase in the PIC charge. Under the proposal, the maximum residential SLC may rise slightly each year to no more than $7.00 by July 1, 2003.

The lower long-distance prices that should result from the plan could actually increase the number of homes with phones, said Nakahata. "The biggest reason people fall off the network is toll usage, so if you bring down toll rates, it should increase subscribership." The Lifeline low income subsidy program will continue to pick up the entire SLC cost for low-income customers, he added.

Companies that offer low long-distance rates by sending calls over the Internet are most likely to suffer if the CALLS proposal is adopted. Often these low rates are based on avoiding access charges - and as access charges drop for conventional IXCs, it will become more difficult for Internet telephony providers to compete on price.

Neither existing nor proposed access charge rules apply to CLECs, nor do SLCs and PIC charges. Many CLECs mirror ILEC access charges, but SLCs typically do not appear on CLEC bills, said John Windhausen, president of the Association for Local Telecommunications Services. "CLECs go in with a price for local service that is underneath the sum total of what [ILECs] charge. If the SLC goes up, it makes that market more attractive to us," he said.

It will still be a while before CLECs serve high-cost areas, though, said Windhausen. Although the CALLS proposal would increase the funding available to carriers willing to serve high-cost areas, the increase would not be enough to attract CLECs, he said. New entrants have found it difficult to compete in rural and residential areas because much of the ILECs' cost of serving those areas is built into higher rates for urban and business customers, vertical services and intrastate access charges.

The CALLS proposal "addresses the bulk of those issues on the interstate side, but there's still the vast world of intrastate," Nakahata said. Rationalizing intrastate rates and subsidies is up to the states and some are moving faster than others, he added. The FCC most likely will issue the CALLS proposal as a notice of proposed rulemaking, an FCC spokesman said.