Mother Bell Gets a Message

After holding American Telephone & Telegraph on the line for 20 months, during which 66 witnesses filled 10,000 pages with testimony, the Federal Communications Commission last week had a message for the company: Mother Bell was making too much money. The FCC held that A.T. & T. should put less of its profit back into the business, instead use the money to reduce its customers' telephone bills. Specifically, the FCC wanted reduction of charges on long-distance and international telephone service by $120 million a year, an average of 3 %.

According to FCC calculations, the company was enjoying more than an 8.5% return on investment, too rich a feast for a public utility. A more reasonable income, said the commission, would be 7% to 7.5%. To A.T. & T.'s insistence that 8% was needed, the FCC replied: "We note from the record that no regulatory agency has ever, in a formal proceeding, approved a rate of return at or even approximating this level for any electric or telephone utility."

A.T. & T. maintained a calm attitude about the edict, but warned that "if allowed to stand for the long pull, this restriction on our earnings prospects would inevitably slow down our efforts to provide more and better communications service to the public." Left unsaid was whether the company planned to appeal the decision. Under the FCC order, reductions on interstate and international calls will go into effect Oct. 1.

Beyond that, the ruling might serve as an impetus for state regulators to force down intrastate telephone rates.

On Wall Street, news of the commission's ruling came as still another blow to A.T. & T. stock, which, with some 3,100,000 owners, is the most widely held in the world. It reached an alltime high of $75 in July 1964, then began falling, and was further depressed by the FCC investigation. Last week A.T. & T. slumped to a 1967 low of $53.25. The loss in value of the stock since the 1964 high: $10.5 billion. Nor is the FCC quite finished with the subject of A.T. & T. In the fall, the commission will launch a new phase of its far-ranging investigation and review such items as teletypewriter service charges and telephone-manufacturing costs.

What impact a new set of rate reductions will have on A.T. & T.'s revenues is hard to say. In 1965, when the company agreed with the FCC on a $100 million rate reduction, it was passed along to the consumer in the form of cheaper rates for three-minute long-distance calls during special hours. That led to a spectacular surge in traffic, and in profits. But that was in a year of spectacular consumer spending. Whether a new rate cut will produce the same results in 1967 is far from certain.

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