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Your telephone companies, led by AT&T, are telling you that a major reason why they have to double or triple your monthly residential telephone bill is because long distance rates will no longer subsidize local service after January 1, 1984. That is the date when AT&T’s long distance unit splits from the soon-to-be independent regional telephone companies.

Reporters covering the telephone story these days repeat, as if it is a truism, the claim that local rates are going up due to the end of the local subsidy by long distance revenues. In fact, the claim is very much open to question.

Attorney Tom Ryan of the Missouri Public Interest Research Group (St. Louis) has filed a formal complaint with the Federal Trade Commission charging misleading and deceptive advertising by AT&T and Southwestern Bell Telephone Company. Ryan, who has been challenging Southwestern Bell before the Missouri public service commission’s rate proceedings, attached copies of these ads to his petition.

One AT&T ad, for example, stated: “Local residential service rates have been held artificially low until now because they’ve been subsidized by long distance rates and other premium services… Local home telephone service is an extraordinary value. It’s priced far below its actual cost.” If AT&T’s assertion is accurate, the question arises as to why MA Bell has been acting so charitably all these years. It could just be that this subsidy is a myth created by adept accounting allocations.

Let’s report some views other than AT&T’s which have not received repeated national coverage.

The Texas Public Utilities Commission concluded: “Southwestern Bell’s contention that toll [long distance] revenues exceed costs is not supported by any valid cost study.”

The Idaho Public Utilities Commission on July 19, 1983 stated: “The commission concurs with the staff conclusion that there is no evidence to support the company’s contention that basic exchange [local] service is subsidized by toll or any other service.”

The Idaho agency’s explanation bears patient reading, as follows:

“The basic flaw in the embedded direct analysis is that it assigns virtually all non-traffic sensitive costs [meaning fixed costs] to basic exchange service even though these costs are incurred for the benefit of all the company’s service categories and customers. In effect, the company is insisting that basic exchange customers should bear the entire cost of the telephone system’s backbone plant while other services such as toll are provided a ‘free ride’ when using this plant. This type of costing system is so patently biased in favor of AT&T’s long lines [long distance] service that we find it difficult to take seriously…”

At the federal court in Washington, Judge Harold Greene, who approved a revised consent decree that broke up the Bell System, said a few words in 1983 about the subsidy issue: “In the first place, it is not at all clear that the subsidy assumed by the Federal Communications Commission has ever existed…the Commission was never able to determine whether, in fact, local rates had been subsidized by long distance rates.”

During the trial of the case, government expert witnesses contended that, in reality, the situation was the reverse: that local telephone revenues have been subsidizing AT&T’s intercity rates. Since the trial was suspended by the settlement of the case, no final decision was reached by the court.

AT&T has a clear interest in pushing this subsidy argument. Public attention is diverted from the real reasons for higher local rates which have to do with new technologies that large businesses can use to bypass the telephone company. Since the telephone companies want to keep these commercial customers from bailing out, the way to do it is to give them accommodating rates and make the residential telephone users pay the difference. Regardless of the AT&T breakup, the telephone companies were planning, with the support of the FCC, to raise local rates sharply anyhow in order to keep their corporate customers inside their systems.

This strategy will work unless residential telephone customers organize, as they have in Wisconsin. State law there gives residents the right to insert a periodic notice in the telephone company’s monthly billing envelope inviting consumers to band together with a full time staff of advocates. The House of Representatives has just passed a telephone bill containing a provision that would permit residential telephone consumers in allfifty states to have the same right.

For more information on this provision, send a self-addressed stamped envelope to Congress Watch, 215 Pennsylvania Avenue, SE, Washington, DC 20003.