Phone Rivalry Keeps Residential Rates Down

Your story, "All those long-distance discounts are sweet, but..." (Information Processing, Sept. 19), concludes that the major long-distance phone companies--AT&T, MCI, and Sprint--are "funding" their residential discount price plans by raising their basic rates, to the detriment of consumers who do not opt for the discount plans. I reach quite different conclusions.

Your unstated assumption is that prior to the recent increases, basic rates were cost-based. As those of us who were at the FCC in 1989 know, the maximum price for these rates was set artificially low. Even today, the margins for these services are too low for the one-third of the market whose calls total less than $3 a month. Given monthly subsidy costs for universal service of 52 cents a customer and bill-rendering costs ranging from 33 cents to 88 cents a customer, it is easy to see why a customer who makes few calls does not cover even the direct costs of service.

With the introduction of competition, artificial rate schedules have undergone restructuring. One should not be surprised to see long-distance carriers raising basic rates "virtually in lockstep," as competition drives out the previous regulatory distortions.

Peter K. Pitsch

Pitsch Communications


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