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AT&T Rate Proposal Cuts Daytime, Business Rates Most

November 18, 1987

WASHINGTON (AP) _ Interstate long-distance calling rates would decline an average of 3.6 percent with daytime and business rates reduced the most, under a new price list proposed by American Telephone & Telegraph Co.

The nation’s largest long-distance company, in a filing Tuesday with the Federal Communications Commission, proposed to lower its rates $800 million on Jan. 1 to reflect lower costs in connecting to local phone networks.

Daytime prices would decline 6.3 percent ″because of the need to make those rates more competitive,″ AT&T said. Evening rates would drop by 2.2 percent and late night and weekend rates would be cut by 0.8 percent.

MCI Communications Corp. and US Sprint Communications Co., the nation’s second- and third-largest long-distance companies respectively, said their response would depend on what the FCC finally approves but both said they intend to remain competitive with AT&T.

In figuring its plan, AT&T based its proposed rates on bigger reductions in local network hook-up fees than those proposed by the local phone companies.

AT&T is challenging those fees, which are paid by long-distance companies as access charges, saying they are more than $1 billion too high.

AT&T said that based on the local companies’ proposed new access rates, it would save $200 million, and when passed along to customers that would mean an average rate cut of less than 1 percent.

But the long-distance leader said it added $600 million in figuring its new rates because it is ″confident the FCC will recognize that access charges filed by the local telephone companies need to be substantially reduced.″

Larry Garfinkel, AT&T’s vice president for marketing, said the company is trying to ″let the public react and then let the commission resolve the matter.″ If the FCC allows more than $800 million in reductions, AT&T will pass the additional savings through to customers ″dollar for dollar,″ he said.

AT&T’s long-distance rates have fallen by about 34 percent since the company was broken up by an antitrust decree, which stripped the company of its local operating units nearly four years ago.

Since then, phone subscribers have been picking up a larger share of the cost of maintaining the local networks by paying a monthly line charge, which has risen from an initial $1 to $2.60 per residential customer. That has reduced the long-distance companies’ share of those costs, allowing long- distance rates to drop.

Jack Grubman, a telephone analyst with Paine Webber Inc., said AT&T’s proposal targets business customers because ″that’s where the competition is and the (profit) margins are better.″

It is structured ″to keep its competitors at bay in business areas where they are trying to break in,″ he said. He noted that AT&T’s plan would extend volume discounts for international calling - an increasingly competitive area in the long-distance market - to more customers.

Grubman also said that if the company’s rate proposal is approved by the FCC, he would expect no further cuts in AT&T’s rates in 1988. That, he said, would be good news to AT&T’s competitors, which have squeezed their profit margins to remain competitive with the industry leader.

AT&T is the only long-distance company whose rates are regulated by the FCC, but its prices have set the pace for the industry. Though AT&T is far larger than any of its competitors, its market share has been declining since divestiture. The company says it now serves about 75 percent of the market.

In addition to the reductions in basic long-distance rates, AT&T proposed cutting prices by 5 percent and 5.7 percent for its Pro-America calling plans.

The company also said it would cut prices by 2.9 percent for its 800 service customers and 4.4 percent for WATS customers, although it would increase the monthly access line charges for those plans by $3.20 to reflect higher special access charges filed by the local phone companies.

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