FCC to vote on MUC proposals

The FCC is expected to act this month on competing proposals that would offer better deals to residential customers who make few long-distance calls.

Consumer groups have urged the FCC to force interexchange carriers (IXCs) to eliminate "minimum usage charges" (MUCs), or monthly fees, billed to low-volume callers. The groups say these fees hurt many elderly and low-income customers who pay for service they do not use.

"The fees have gotten out of control. The FCC has not been aggressive enough in confronting the problem," said a spokesman for the Consumers Union.

But IXCs say the minimum charges are needed to cover billing costs. "People who don't make any long-distance calls cost us money to keep them on our account," said Roger Crisman, director of marketing for Sprint.

"AT&T was losing billions of dollars on these customers, so they instituted these fees to recoup some of their costs," said Meredith Rosenberg, The Yankee Group's director of consumer analysis. MUCs now have become standard practice.

The FCC last summer began a formal inquiry into the impact of MUCs on single-line telephone customers who make few or no interstate calls. Costs have fallen steadily in the $105 billion long-distance business, but consumer advocates say that MUCs and other "bottom-of-the-bill" charges have increased bills for about half of residential customers.

The inquiry has been wrapped into a contentious proceeding on access-charge reform - how best to restructure the complex system of network subsidies to reflect actual costs. The FCC may vote this month on a proposal submitted by a coalition of local telcos and IXCs called the Coalition for Affordable Local and Long Distance Services, or CALLS. Consumer groups have put forth their own plan.

Part of the fight involves how to treat low-volume callers, who make up to an hour's worth of long-distance calls per month. Most of the 41 residential calling plans offered by seven IXCs don't charge MUCs, according to the latest report of the Telecommunications Research and Action Center in Washington.

Although AT&T, MCI WorldCom and Sprint aren't ready to abandon their plans with MUCs, they offer no-MUC plans for customers who make few calls.

MCI WorldCom, which is not part of the CALLS coalition, earlier this month introduced a no-MUC plan that charges 30cents per minute on weekdays and 5cents per minute on Sundays.

Sprint will continue to offer a no-MUC plan, and AT&T has promised to end its $3 MUC for basic-rate customers for five years - but only if the FCC orders $2.1 billion in access-charge reductions and eliminates the pre-subscribed IXC charge by July 1.

There is disagreement about the economic impact of cutting MUCs. Consumer groups say low-volume users, who comprise about 20% of IXC subscribers, would pay less for long-distance service. FCC Chairman William Kennard said the CALLS plan seems to reduce their bills by at least $4.50 per month.

However, IXCs that eliminate MUCs likely would offset their losses by raising per-minute rates or charging more for services such as directory assistance, said K.C. Choi, a senior research associate at TRAC.

Although low-volume callers sometimes pay more per minute than high-volume customers, they've been subsidized for years by others who pay higher rates than the actual cost of service, he added.

CALLS' access-charge plan would impose new direct charges on IXC customers but should have "inconsequential" impact on low-income users, said consultant Larry Darby in a February report for the Economic Strategy Institute, a nonpartisan research organization in Washington.

The FCC said low-volume callers don't have to sign up with an IXC to make long-distance calls. Alternatives include the use of prepaid calling cards, dial-around services and collect calling.