FCC Suggests Lifting AT&T; Profit Limits : Long-Distance Rates Would Have Ceiling Imposed

WASHINGTON —  The Federal Communications Commission proposed today lifting all restrictions on the profits of American Telephone & Telegraph Co. but imposing a cap on the company’s long-distance phone rates.

The agency, in a 4-0 vote, also proposed eventually abolishing rate-of-return regulations for the interstate services offered by the seven regional Bell operating companies.

A year ago, the FCC lowered the authorized rate of return, or profit margin, to 12.2% for AT&T; and 12% for the Bell company services it regulates. The rate previously stood at 12.75% for all the companies.

At that time, the commission predicted the change would cut long-distance rates by $1.2 billion by the end of 1988.

Support From Rival

In March, however, AT&T--with; support of its chief rival, MCI Communications Corp.--petitioned the commission to lift all restrictions on its profits, claiming rate-of-return regulations inhibit its ability to compete with other long-distance companies, which are not subject to such rules.

The company suggested replacing profit margins with rules streamlining the process AT&T; must follow to change prices or offer new services. In exchange, AT&T; promised to provide long-distance service in all areas of the country and keep prices uniform nationwide for the next three years.

The FCC’s proposal apparently would give AT&T; part of what it wanted.

Vestige of Monopoly Era

AT&T; spokesman Herb Linnen said the commission’s action was “timely,” since, “rate-of-return regulation is a vestige of the monopoly era and is outmoded in today’s highly competitive long distance market.”

“It is important to understand that rate-of-return regulation controls earnings and not prices,” Linnen said, and in “many cases . . . has been responsible for higher prices than originally proposed by AT&T.;”

Linnen said the company still needs to study the FCC proposal.

Under the proposal, AT&T; could adjust its rates to reflect inflation and productivity changes without prior FCC approval. And it still would be required to pass along to its customers, dollar-for-dollar, any savings it realized when local phone companies lowered the cost of hooking into the local network.

No ‘Gold Plating’

Commissioner James Quello said the plan would be an “incentive against gold plating,” or keeping prices artificially high.

Mary Beth Hess, of the agency’s Common Carrier Bureau agreed, saying, “A price ceiling would protect against sudden steep price increases and reduce the incentive for companies to inflate rates and to subsidize other, nonregulated services.”

The agency asked for public comment on the price cap plan and on ways to put it into action.