FCC ADOPTS CHANGES TO PHONE RATES.

Byline: Bob Dart Cox News Service

Nudging the telecommunications industry toward free-market competition, the Federal Communications Commission approved rules Wednesday that will cut long-distance costs for residential customers but increase fees for many businesses and people with multiple phone lines.

The complex regulatory changes will cut the access fees that the ``Baby Bell'' local phone companies collect from long-distance carriers such as AT&T, MCI and Sprint.

The long-distance carriers have said they will pass on their savings to residential customers, especially ``basic'' subscribers who do not have discount plans for long-distance calls.

The local phone companies collect about $23 billion a year in access fees - mostly charged to long-distance companies for beginning and ending calls.

Under the new rules, the FCC also set up a $3 billion annual fund for linking the nation's schools, libraries and rural hospitals to the Internet and subsidizing poor or isolated phone customers. This congressionally mandated move toward ``universal access'' will be funded through assessments on interstate phone carriers and higher phone fees paid by businesses and multiline residential customers.

``Basically, the FCC moved $5 billion a year around,'' said Mark Cooper, director of research for the Consumer Federation of America. ``The first $2 billion is a reduction in excess profits of the Baby Bells, in the form of a reduction of the access fees they charge long-distance companies,'' which phone companies are expected to pass on to the ratepayers.

Cooper said the remaining $3 billion for wiring schools, libraries and rural hospitals largely will be paid by businesses, which will pass on their higher phone costs to their customers.

But he rejected the notion that the Baby Bells will recover their lost revenues from access fees by petitioning state public service commissions for permission to raise rates.

``I don't think there is any chance this will result in local rate increases,'' said Cooper, who called the FCC action a ``partial victory'' for consumers.

However, the acclaim was hardly universal.

``Small-business owners are consumers, too, and the bottom line is that small businesses as consumers got the short end of the stick from this FCC decision,'' said Karen Kerrigan, president of the Small Business Survival Committee.

A typical small business - a real estate agency, retail outlet or takeout restaurant, for examples - has several phone lines and mostly local customers, Kerrigan explained. Such a business wouldn't benefit from lower long-distance rates but would be hurt by higher fees for multiple phone lines, she said.

``I don't think this is what Congress had in mind'' in passing the 1996 telecommunications reform law, said Kerrigan.

Indeed, the FCC action is likely to be challenged in court and to be examined by congressional committees.

``Radical and arbitrary changes to access rate levels without sufficient universal service support mechanisms in place will lead to significant rate increases for local telephone service subscribers,'' warned Reps. John Dingell, D-Mich., and Billy Tauzin, R-La., this week in a letter to FCC Chairman Reed Hundt.

However, Hundt said the charge that the FCC is effectively raising local phone rates is ``a lot of hooey.''

He said that the new rules will result in lower phone bills for 85 percent of the nation's 82.6 million residential phone customers with one phone in their home. For the other 15 percent, the bills will stay about the same.

The FCC said the average single-line residential customer will save about 8 percent on long-distance calls - a drop from $22.50 to $20.65 on the typical long-distance bill.

Over the next six years, the FCC projects a cumulative consumer benefit of $25 billion for residential and business phone users on their long-distance calling. The savings will be even greater as competition escalates in an increasingly deregulated telecommunications industry, the FCC predicted.

However, residential users who have separate phone lines for their children or computers could see their phone bills increase - especially if they make few long-distance calls.

The maximum fee for additional residential phone lines, now capped at $3.50 a month, will increase to $5 a month next year, $6 a month in 1999, and eventually to $9 a month. The maximum fee for additional business lines, now capped at $6 a month, also will increase to $9 a month next year.

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BOX: HOW PHONE SERVICE WILL CHANGE