FCC rulings overhaul rules of the game

Long-distance carriers will benefit more than local telcos--at least in the short run--from the Federal Communications Commission's plan to cut long-distance calling rates and to restructure subsidies that support universal access to local telephone service.

Most carriers praised the FCC's three orders released last week--on universal service, access charges and and price-cap reform--as a good first step. But almost everyone found something to love or hate about the plan.

Only one explicit threat to sue emerged last week.

"The commission's actions are clearly inequitable and discriminatory for [personal communication services] and paging carriers," said Jay Kitchen, president of the Personal Communications Industry Association, in a statement. "PCIA will lead the charge to the U.S. Supreme Court if necessary."

For the first time, wireless companies will join interexchange carriers and local exchange carriers in paying at least $23 billion for universal service. ISPs remain exempt.

Starting in 1998, schools, libraries and rural health care facilities will also receive up to $2.65 billion annually in discounts on advanced telecom equipment and services, including Internet access.

The steep cut in access charges, starting with $1.7 billion this year, delighted IXCs while blowing a hole in LECs' short-term revenues. Some LECs fear they will be forced to raise local rates to make up for the loss, something Congress clearly did not intend.

Although IXCs will pass on savings to their customers, they should benefit from higher profits in the long run, said Gene Michaelson, a partner at Arthur Andersen Global Communications & Entertainment Group, Seattle.