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Nynex Rate Proposal Draws Fire, Symbolizing Local-Long Distance Feud

September 27, 1994

ALBANY, N.Y. (AP) _ Nynex Corp. on Tuesday offered to lower basic phone charges in New York if state regulators remove a cap on its profits for seven years, a controversial proposal other local phone companies may copy to fight long distance and cable firms.

Long-distance carriers immediately vowed to fight Nynex’s rate proposal, saying it would give the company an edge for the day when they directly compete.

The proposal and reaction to it further indicate the sharp differences phone companies have about the timing of competition, which all say will bring more services and lower prices to consumers.

The Nynex plan, which would affect 7.5 million business and residence customers across New York, will be considered by the state Public Service Commission. The proposal already has the support of the staff of the regulatory commission and the governments of New York City and Buffalo.

If approved, it could take effect Jan. 1 and reduce the average monthly residence phone bill in the first year 56 cents to $33. Smaller cuts would generally follow every year, leading to an overall drop in annual rates of $425 million by 2002.

Analysts said Nynex would easily make up that amount through normal demand for new phone lines, even with competition. Nynex stock rose $2 to $38 on the New York Stock Exchange as Wall Street recognized the plan’s profit potential.

George Reed-Dellinger, analyst at NatWest Securities Inc., said that while similar proposals have been made elsewhere, none were as broad as Nynex’s.

The plan, coupled with a previously announced decision to cut nearly 17,000 employees over three years, would likely bring operating earnings growth of more than 10 percent annually for several years, according to a preliminary analysis by William Deatherage of S.G. Warburg & Co.

Long distance carriers, including AT&T Corp. and MCI Communications Corp., opposed the plan, saying it would let Nynex charge less than them for long distance service within an area code.

They also fear that Nynex will also get a freeze on rates for services where costs are now high but declining. As the costs go down, Nynex would still be paid high rates, pulling in more profits that could be applied to new markets for the company, such as long distance.

″Nynex is attempting to construct anti-competitive roadblocks right here in New York state into the next century,″ said Donna Sorgi, an MCI lobbyist.

Kathryn Brown, director of consumer services at the Public Service Commission, defended the proposal, saying it would give consumers lower bills and better service.

She refuted the long distance company claims, saying it is designed to provide a level playing field for all.

The Nynex proposal marks the second time this month that one of the nation’s big local phone companies has angered long distance companies over long-term phone rates. In Missouri, long distance firms have protested a four- year rate moratorium that Southwestern Bell Corp. won from regulators.

Local and long distance companies, while frequently boasting about the efficiency and savings competition will bring in the future, have different ideas about when they should fight with each other in the marketplace.

Those differences played a key role in the demise of bills to change federal telecommunications law. The effort officially died last week when Sen. Ernest Hollings, sponsor of the Senate bill, said it wouldn’t get through because of opposition by local phone companies.

NatWest analyst Reed-Dellinger said he was not surprised by the protests from long distance companies to the Nynex proposal.

″Part of the regulatory game is to extract a pound or more of flesh from any beneficiary of a regulatory development,″ he said.

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