U.S. Regulators Unveil Big Phone Rate Changes

WASHINGTON -- Unveiling the most sweeping price changes in telephone industry history, U.S. federal regulators have voted to raise basic phone rates for businesses and residential customers with second lines to reduce the cost of long-distance dialing.


The Federal Communication Commission's new rules -- which will affect the 93 percent of U.S. households that own a telephone, as well as Internet users and all businesses -- change the way telephone subsidies are collected from the nation's phone companies and redistribute those funds among a wider group of recipients.


These overhauls, which will undergo further refinement before the agency begins to implement them over the next eight months, will cut the $14 billion a year in long-distance fees that AT&T Corp., MCI Communications Corp. and other long-distance carriers pay to local phone companies to complete or originate toll calls. The cuts should total $1.7 billion in the first year and $18.5 billion over six years.


The FCC estimates that the cuts will save the average residential user on a basic rate plan about 8 percent on the typical $22.50 monthly long-distance bill and will trim the $375-long-distance tab of the average small business user with four lines by $31 per month.


But the changes would also boost rates on multi-line residential and business users, to more than $2 billion a year, according to industry estimates. Customers on discount plans will likely see less dramatic drops in the first few years of implementation.


About $2.25 billion raised annually as a result of the overhaul will be used to enable the nation's schools and libraries to secure high-speed Internet access. Another $300 million a year will be used to connect rural hospitals to the Internet.


The new rules, adopted Wednesday, are part of a complex federal initiative to maintain affordable "universal" phone service for the poor and those living in rural areas, while cutting the huge subsidies that are currently built into business phone rates, long-distance telephone fees and special services, such as caller ID and call forwarding.