US: TELECOM DEREGULATION TO RAISE PHONE BILLS

5:39 AM Apr 1, 1997

US: TELECOM DEREGULATION TO RAISE PHONE BILLS
New York 31 Mar (TWN) -- When trade negotiators at the World Trade Organization were negotiating, and concluded in February, an agreement for liberalization and deregulation of the basic telecom sector, it was sold to the public in all countries that it will benefit consumers and bring down phone bills and costs.

Trade economists, World Bank advisors and officials at the International Telecommunications Union all joined in holding out this prospect - based on the experience of deregulation and liberalization in the UK and the US - to persuade developing countries to open up their telecom sectors and liberalize.

In the forefront of those pushing developing countries at the WTO was the Chairman of the US Federal Communications Commission (FCC), Mr. Reed Hundt.

"Thirteen months after the telephone industry was deregulated in the name of free market benefits for consumers, the public might soon see the first tangible result of competition: higher phone bills," the New York Times reported on 30 March.

Proposals to end subsidies and cross-subsidies being weighed by the FCC, the report said, would raise the costs of local phone bills, for 'universal service', anywhere from $1.50 to $6 a month.

And if the FCC finds it a hot potato, and takes no action, state regulators (who regulate local phone companies) would find themselves forced to sanction the rise - and face the political consequences.

US Congressmen and Senators who "bought" the deregulation policies in the belief of consumer benefits are now upset, and to avoid a hot potato, the FCC may decide not to raise local phone rates or raise them only moderately, and drop the hot potato in the laps of regulators at state level, who would be forced to find ways of compensating local phone companies for the loss of earnings on long distance connection calls that was being used by them to subsidise local phone connections.

This prospect, the Times reported, has already engendered bitterness among state regulators who fear they would be blamed for politically unpopular rate increases.

The Times story quoted Sharon Nelson, Chairwoman of the Washington Utilities and Transportation Commission as describing the policy as the "game of 'shift and shaft': shift the costs to the states and shaft the consumer."

As the WTO is set to relaunch the negotiations this month for liberalization of financial services, and the US and the EU, and the WTO head press the developing countries to liberalize and allow their consumers to benefit, they might ponder on the US telecom experience.