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FCC mulls overhaul of phone rates, Internet subsidies
|16 октября 2008|
In what could be the most significant action during his tenure, Federal Communications Commission Chairman Kevin Martin is proposing to revamp dramatically the multi-billion-dollar system under which phone companies pay each other to transfer calls to their customers.
Consumer advocates say the changes Martin wants, bringing the highest rates in rural areas down to a fraction of the current level, will cause millions of customers to see $1 to $2 increases in their monthly phone bills while phone giants like Verizon Communications Inc. and AT&T Inc. could gain millions in savings.
In an interview with Dow Jones Tuesday, Martin said he wants to phase in the rate changes, some of which are governed by the states, and to require states to set low, uniform rates for all kinds of calls.
"As the per-minute rate goes down, your long distance rate, or your bundle-a-minute rate might go down, even though your local rates go up," Martin said.
In a nod to consumer advocates and Democrats on the commission, Martin said he also wants to channel any savings from the rate change toward expanded Internet access. He said he wants to change government subsidies for carriers in hard-to-reach areas, requiring them to offer high-speed Internet connections to all subscribers within five years.
"If you want to continue to get your money, are you going to make a commitment to broadband?" Martin asked. To receive subsidies, companies would be required to offer service equivalent to a basic DSL line.
With strong Internet requirements, some advocates say a $1 to $2 monthly phone bill increase may be worthwhile.
Martin planned to circulate his proposal late Tuesday in advance of the Nov. 4 meeting - Election Day - when he wants the five-member commission to vote on it.
While details will continue to be negotiated, the broad outline of Martin's proposal includes a $1.50 to $2 monthly increase that phone companies could charge residential subscribers for individual phone lines, according to multiple industry and FCC sources.
Phone rates to businesses could be higher.
State regulators and rural phone companies that stand to lose power and money from the change already are readying legal arguments against it. Many also are appealing to Capitol Hill, telling representatives that they stand to lose $2 billion annually if the rates in their areas are cut.
Martin's proposal puts the losses at closer to $500 million, which he said are targeted at mid-sized, deregulated carriers who collect subsidies and charge high exchange rates to other companies, but also pay high dividends to their stockholders.
"We're going to take a look," he said."Are you really losing money or are you paying big dividends?"
If companies can show high costs, they will continue to benefit from the subsidy program.
The current payment system, which dates back to the break up of the Bell System in 1984, is widely divergent, with some carriers charging a fraction of a penny per minute for outside calls to their customers, and others charging hundreds of times that much for the same service. The FCC has for years called for reform, but has been unable to resolve disagreements in the industry about how a new system should look.
A low, nationwide rate would make more sense than the current mish-mash of charges and eliminate some companies' ability to game the system by routing phone calls through the most expensive connections.
AT&T has said a national low rate of $0.0007 per minute for exchanging phone traffic would create roughly $4 billion in savings for the entire industry. Under Martin's plan, rates might not go that low, and they may vary across states. But the rates will be significantly lower than the current rates, which sometimes run in the half-cent range.
It also isn't clear if the savings will go directly into the big phone companies' own pockets. AT&T and Verizon officials are careful to note that they, too, will lose money from the proposal because they will face higher charges.
Consumer advocates are anxiously watching the Internet components of the proposal."These [phone] increases may be inevitable," the open-Internet group Free Press said in a Monday letter to the FCC. Free Press said the hikes should give "rural America the ultimate payoff: universal affordable broadband."
In a slightly different analysis, Consumers Union Senior Counsel Christopher Murray said the benefits of Internet in rural areas may not be enough to compensate for higher phone charges.
"We worry about $2 to $4 increases on millions, potentially tens of millions of consumers, especially elderly people on fixed incomes and poor families," Murray said."We see guaranteed wins for the Bells in this proposal but uncertain benefits for consumers."
Wireless companies like Sprint Nextel Corp. and T-Mobile USA, a division of Deutsche Telekom AG, also will be affected. Like Verizon and AT&T, they support a low national rate for exchanging phone traffic.
But Martin also wants to eliminate wireless providers' right to claim government subsidies for offering service in hard-to-reach areas. Instead, Martin wants all companies, wireless included, to show they have incurred losses in providing rural service before they can collect the subsidy.
Without those changes, Martin worries that the subsidy fund will collapse of its own weight and rates will go up anyhow.
Other telecommunications sectors stand to benefit as well, including the burgeoning Internet phone industry and Internet startups that could roll out new businesses as high-speed networks are built up in rural areas.
Ultimately, new competition from Internet phone companies could drive all phone prices down, saving families hundreds a year, said Jim Kohlenberger, executive director of the Voice on the Net Coalition, which supports a low national exchange rate.
The timing of the Nov. 4 FCC meeting is important because the commission faces a court-mandated Nov. 5 deadline to justify a smaller rule in the compensation system on dial-up rates. An FCC lawyer told a federal judge this summer that the commission would use the court deadline to rework the entire system.
History suggests Martin is facing long odds in pushing the proposal through the FCC. But some observers say the stars may be aligned for action this time. Rural phone companies that charge the highest rates are seeing that revenue stream decline. At the same time, a broad coalition of companies and organizations that don't always agree have joined forces to call for a low universal rate.
Opponents are ready to pitch a fight. The National Telecommunications Cooperative Association, which represents small phone carriers, told FCC officials earlier this month that a new rate of $0.0007 per minute puts many of their members' livelihoods at risk.
NTCA is seeking to recoup any losses through additional government subsidies. Martin is proposing that the smallest phone companies - those regulated by states and treated like utilities - recover their losses by increasing subscriber charges. If they aren't "made whole" by those increases, those small companies could get government subsidies to make up the difference.
Internet requirements could place significant burdens on small rural companies that already are offering some online access, said Daniel Mitchell, vice president of NTCA's legal and industry affairs division.
"It would price a significant portion of rural consumers out of the market," Mitchell said."If our consumers have to shift to a lower quality [Internet] service or no service at all, it'll put us out of business."