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Users will lose with price caps, say TCA, ICA.

Users Will Lose With Price Caps, Say TCA, ICA Two major telecomm user groups urging the Federal Communications Commission to forget about price caps for local exchange carriers. They say changing the method of regulation could mean billions of dollars of extra profits for the LECs, at users' expense.

Tele-Communications Association and International Communications Association filed their comments with the FCC in an attempt to head off Jan. 1, 1991, implementation of price cap regulation for the LECs. Price caps would replace the current rate of return regulation.

But the U.S. Telephone Association, which represents telcos, says the user groups are relying on bogus information, and users would actually save $1 billion under price caps.

Price caps would set floors and ceilings on LEC prices, compared with the current method of regulation through rate of return on investment. Under price caps, the FCC would expect LECs to improve productivity by at least 2.5% yearly.

TCA and ICA say using an artificially low 2.5% figure will amount to a hidden rate increase for customers. They support a productivity offset in the range of 5%.

"Raising the offset is essential in order to avoid massive, wholly unjustified rate increases," TCA told the FCC.

TCA also insisted that the FCC modify its proposals to:

* Prevent excessive LEC earning through a better method of sharing the excess with customers.

* Protect network service quality by enforcing reinvestment into the network rather than simply increasing shortterm shareholder profits.

* Limit LEC pricing flexibility by creating six service categories and limiting upward pricing to 2% annually.

ICA concluded that the FCC "can design and implement a method of regulation for the LECs which will provide stronger incentives for increased productivity," but "the specific price cap proposal ... does not satisfy the commission's own criteria for an acceptable price cap plan."

TCA contends that "unanimous rejection of the LEC price cap proposals by the very parties the commission intends to benefit must cause the communication to reassess its fundamental approach to incentive-based regulation, withdraw the pending proposals, and start anew."
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Title Annotation:Tele-Communications Association, International Communications Association
Publication:Communications News
Date:Aug 1, 1990
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