The Honorable William E. Kennard
Chairman
Federal Communications Commission
Washington, DC

 

Dear Chairman Kennard:

 

We are writing to urge you and by a copy of this letter your fellow Commissioners to take an active interest in the new developments in the residential long distance industry and to open an inquiry into the issues surrounding these developments.

The news reports that AT&T has agreed to break itself up, perhaps “spinning off” the residential long distance business, raise serious concerns for consumers. Similar stories are circulating with respect to Worldcom and its residential long distance business.

There is no doubt that the telecommunications industry is in turmoil driven by revolutionary innovation in technology and increased competition for business customers. What isn’t clear, however, is how well the residential telephone user is doing, nor how they will do if these planned changes by the two largest telecommunications carriers take place.

The Federal Communications Commission has a legal obligation to assure that the public interest, convenience and necessity are served whenever there are transfers of regulated assets.   This obligation usually occurs when there is an application for a transfer. In this instance, however, we think that the Commission should get a head-start, and open a public inquiry into the residential long distance telephone market with the primary objective of determining whether current regulations and likely transfers of assets are in the public interest.

It is entirely possible that the market is not working for residential customers. We have seen a consistent effort on the part of the long distance industry during the past five years to increase their revenue per-residential customer.  MCI & AT&T have led the way through the implementation of monthly minimums (now withdrawn as part of the CALLS plan), elimination of low-rate calling periods (night time rates are now gone), expanding day time rates from 5 p.m. to 7 p.m., tripling of the cost of long distance directory assistance, the addition of “casual calling rates” at exorbitant levels, increasing calling rates, etc. etc. etc.

And more recently, rates have gone up on some of the most popular plans, often without advanced notice to consumers and users.

Now, Worldcom and AT&T want to spin off these lines of business.  We are concerned that this is simply a plan to siphon off the scale and scope efficiencies that help assure affordable rates for residential customers and transfer them into higher shareholder profits and/or lower business rates.

It is our suggestion that the Commission open an inquiry immediately and examine what, if anything, is “broken” here, and how to assure that any change in industry structure is in the public interest, particularly, the interest of the residential ratepayer.  Among the issues that need to be examined, include:

1. Was the Commission right to deregulate the residential long distance market? TRAC has several times over the last decade argued that consumer interests are not served in an oligopolistic market, and therefore, the residential long distance market should be subject to some form of regulation.
2. Are the Commission rules that force the creation of separate subsidiaries to offer various services contributing to the elimination of efficiencies that lead to lower rates?
3. Was the Court in 1984 simply wrong when it broke the AT&T Bell System up by separating long distance from local, instead of separating the manufacturing arm? Perhaps had AT&T spun off what is now Lucent 16 years ago, there would have been greater facilities based competition in the local and long distance market. What is necessary today to get real competition in the residential marketplace?
4. There has been speculation that AT&T would be interested in selling its residential business to one of its former ‘Baby Bells.’ Would that be a good idea? What would have to happen to make that possible? Would such a change help assure lower rates and greater competition, or just the opposite?

I am sure the experts and market analysts have many other questions.  We urge you to move quickly to set up the structure to look into these industry-shaping events. Do so, however, with one thought in mind, how to assure that residential customers are going to be the beneficiaries, not the victims, of these changes.

 

Samuel A. Simon

Chairman

 

           The Honorable Susan Ness

The Honorable Michael Powell

The Honorable Harold Furtchtgott-Roth

The Honorable Gloria Tristani

            Kathryn Brown, Chief of Staff to Chairman Kennard