Jumbled Long-Distance Lines

By John S. DeMott.

Bewildered Americans have waited by their telephones for a year and a half to hear of some concrete benefit from the breakup of the Bell System in January 1984. Up to now, many people thought the only results were nearly indecipherable phone bills, baffling repair procedures and higher charges for local service and directory assistance. Last week came still more confusion.

Industry leader American Telephone & Telegraph, which has more than 90% of long-distance business, put a 5.6% rate cut into effect. MCI Communications of Washington (1984 revenues: $2 billion) followed with a cut of up to 11% on rates starting July 1 and claimed the new fees would beat AT&T's prices by 5% to 35%. MCI's reductions would drive down the cost of a ten-minute weekend call between New York City and San Francisco to $1.71, from $1.82. Sprint, a subsidiary of Connecticut-based GTE, and Chicago's Allnet said they might cut their rates too.

Those savings, though, will be at least partly offset by a long-debated federal access charge of $1 per month that begins showing up in June on phone bills of millions of Americans. The fee will increase to $2 next year. The surcharge will be given to local phone companies to help make up for the loss of subsidies from long-distance service that the Bell System formerly funneled to them so that they could keep down local phone costs.

The Federal Communications Commission weighed in with still more complexities. It voted unanimously last week to approve a system of apportioning customers to various long-distance services. Following a plan already adopted by Northwestern Bell, local phone companies will be required to ask customers several times to choose a long-distance carrier. If they do not pick one, they will go into a pool that will be divided up among long- distance companies on the basis of the proportion of customers who have already decided.

The ruling was one of the most important since the Bell System was broken into eight giant pieces, leaving AT&T responsible for long distance and seven regional companies handling local phone traffic. GTE Chairman Theodore Brophy reacted enthusiastically. Said he: "This is the first step toward establishing fairness in the long-distance telecommunications market." AT&T, though, was less than enthusiastic, warning that the new process would leave customers the victims of "long-distance roulette."

With the decision, the FCC moved the U.S. phone system a step closer to one of the goals of the Bell breakup. That was to promote competition in the long- distance field by making it as easy to use new long-distance companies as it is to use AT&T. At present, an AT&T long-distance customer need only dial 1 plus the area code and local number. But in most areas, customers of competing networks must punch in as many as 22 numbers before reaching their party. Even when a connection is made, customers complain of erratic voice quality and noise, brought about sometimes by inferior transmission equipment.

By this September, though, one-third of local Bell phone users must have access to the convenience of "1 plus," and 100% of them are scheduled to get it by September 1986. Last August, Charleston, W. Va., was the first city to convert to so-called equal access, and other exchanges are making the switch on a cumbersome local basis. The procedure requires that telephone customers choose which of the long-distance services they want.

MCI, Sprint and other competitors, however, claim that the process has been unfair. Most local Bell phone companies, they say, merely send their customers a list of long-distance firms, saying that the firms will be reaching them about signing up. AT&T's rivals also claim they cannot obtain up-to-date customer lists from the company, making it difficult even to find out where potential clients live. Says MCI Spokesman Gary Tobin: "AT&T has the addresses, phone numbers and billing information for every long-distance customer in the country. We're at a disadvantage." MCI has relied heavily on TV ad campaigns with Comic Joan Rivers and others to drum up business.

MCI says that only 20% to 40% of the customers eventually make a choice about which long-distance service to get. Most people have taken the easy way out by doing nothing. They are then automatically assigned by the local telephone company, usually to AT&T.

The FCC ruling should spread more phone business around to the new competitors, but it comes at a price. When the new companies began battling Ma Bell, the fees they paid to local phone companies for access to a customer's telephone were less than AT&T's. Reason: the Government wanted to promote competition. But with equal access, that advantage is being phased out. Some smaller companies will have to pay as much as 104% more for access, and profits will be squeezed. That could increase pressures to raise rates, and some long-distance carriers may not survive.

The new companies face other problems too. In a rush to sign up new users, they failed to run reliable credit checks. The result for some companies: a rash of unpaid bills. The new carriers do not have the authority to cut off all telephone service, as Ma Bell could do before the breakup. One possible solution: paying local phone companies to collect long-distance bills. Sprint even has a holiday hangover. A California consumer group filed a class action last week accusing the company of billing phone users at rates higher than the promotional ones advertised for last Thanksgiving and Christmas. It claims the company reaped $2 million and $4 million in overcharges.

MCI suffered a different kind of setback last week. More than a decade ago, the firm sued AT&T over marketing practices that it said hurt efforts to compete against the phone giant. MCI initially won a $600 million judgment in that case, which was automatically tripled under federal law to $1.8 billion. AT&T appealed and won a new trial to determine the amount. Last week a jury decided that MCI should be paid just $37.8 million in damages, or $113.4 million after the required trebling. Small change indeed when compared with the $5.8 billion MCI had sought. This time neither side seems to be in a mood to appeal again.

With reporting by Thomas McCarroll/New York and John E. Yang/Washington