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Telecommunications Bill Could Boost Phone Rates

March 20, 1996
By: Dana Coleman
State Capital Bureau

JEFFERSON CITY - The cost of a phone call could jump in Missouri if opponents are right in predictions about the effects of a telecommunications bill pending before state lawmakers.

When the House returns from spring break on March 18, they'll find on their work list a telecommunications bill that has pitted major segments of the telecommunications industry against each other.

Some consumer groups, such as the American Association of Retired Persons, have sided with long distance and small local carriers, in opposition of the bill.

The bill's sponsors and proponents agree with the opposition that rates would go up, but they say that rates are going to rise anyway because of the recently enacted Federal Telecommunications Act, which opens up competition in local markets. But supporters maintain that the bill would keep rates from skyrocketing in Missouri.

Opponents say that if the bill passed, local carriers, such as Southwestern Bell and GTE, that monopolize much of the states local markets, would be able to raise and lower prices with a great deal of freedom. Also, there is some concern that parts of the bill are inconsistent with the Federal Telecommunications Bill. But the bills sponsors have said that they want make sure the bill is consistent with the federal law.

The bill is sponsored by Rep. Carol Jean MaysD-Independence.

"It's pretty much common knowledge that Rep. Mays wrote this bill on behalf of Southwestern Bell," said Rep. Tim Van Zandt, D-Kansas City. "And I can't support the bill until it guarantees that local carriers won't be able to freely raise their rates."

But Southwestern Bell maintains that the bill is completely fair and is the best bill for both consumers and all companies in the telecommunications industry, said company spokesperson Earnest Harris.

Currently, when a local carrier wants to raise it's rates, it must get approval from the Public Service Commission, a state regulatory body.

The company tells the PSC how much money it costs to provide service and how much money it earns. The PSC then reviews the cost and earnings and decides if and by how much the company can raise it's rates. That regulatory system has been in place since 1913.

"We should keep system until the competition has a chance to catch up with the big local carriers," said David Scott, president of Kansas City FiberNet.

Long distance carriers and small companies currently are shut out of most markets in Missouri, said Steve Weber, director of government relations for AT&T. "It could be years before market forces drive down prices and allow competition," he said.

But supporters such as Woody Simmons, GTE state manager of governmental affairs, says that competition is just around the corner. "I think we will see competition in GTE's markets in 12 months," Simmons said. "AT&T has already filed to be a local carrier in the state of Missouri."

Southwestern Bell's Harris agrees, "We need to be able to raise and lower our prices to compete with new long distance carriers," he said.

The bill fails to provide safeguards for consumers if competition does not develop, said Martha Hogerty, Public Council of the State of Missouri.

If the bill passes, local companies could adopt a new rate raising system, commonly called price cap regulation. Companies would be able to raise their rates based on the Gross Domestic Product-Price Index, a consumer index set by the federal government. That index has risen approximately 32 to 35 percent since 1987, said Karen Massey, legislative coordinator of the PSC.

Under the bill, the company would be able to increase its rates by the GDP-PI minus two percentage points, or by one half the change in the GDP-PI. The bill does not say which option the local exchange carrier can use.

A proposed amendment to the current version of the bill provides that larger companies would not be able to raise their rates until three years after the legislation is enacted.

In addition to potential increases stemming from the price system, opponents point to two other key areas of the bill that would allow price increases.

Access charges, that is money that local carriers charge long distance companies allow them to provide intrastate service customers, would be limited by the bill to no higher than the 25 percent the access charge for interstate services.

Currently, some local carriers, charge as much as twice the federal interstate service for intrastate service. The bill allows them to raise local rates over a four-year time period to make up for the money they would lose by lowering their access charges to 25 percent above the federal level.

Opponents have also targeted the Universal Service fund provisions in the bill as a problem area, saying that it also allows for rate increases.

All telecommunications companies contribute to the Federal Universal Service fund and those companies that service high-cost areas, such as low-income and rural areas can draw money out of the fund.

AT&T's Weber jokingly refers to the fund as "cooperate welfare." But most supporters and opponents of the bill say that a universal service fund is necessary to ensure that all Missourians have access to phone service.

The Federal Communications Commission is reviewing the federal fund and may change the way money is distributed. Potentially, Missouri local carriers could lose money from the federal fund, depending on future actions of the FCC.

Missouri is expected to draw phone companies more than $46 million from the fund during 1996. Only Texas is expected to take a greater amount of money out of the federal fund.

The bill would allow companies to raise their service rates to offset any losses resulting from federal action.

The Missouri House bill would establish a state universal service fund, so that local companies could draw money out of it, which has sparked debate about how it should be set up and who should get the money out of it.

If companies are allowed to increase rates to make up for losses from the federal fund and they are allowed to take money from the proposed state fund, they could be "double-dipping," some opponents say.

The legislators are preparing to work through many issues surrounding this bill, including the debate over non-basic service regulation. The bill would allow local exchange carriers to increase non-basic service rates, for services such as "call waiting," six percent a year, without approval from the PSC.