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Reader's Digest; March, 1984


Higher or lower telephone rates?  Better or poorer service?  More or fewer options?  Here are the answers.

The much-heralded divestiture of the $148-billion American Telephone & Telegraph Co. has taken place with remarkably few snafus.  Phone service has continued uninterrupted, and when the first phone bills of the new year arrived, they came from the same local phone companies as always.  What really changed?

Not much--yet.  But a lot of changes are in the works.  "We've entered a new era in which the consumer will have many options affecting the cost and convenience of service," says Larry Wallace, charman of the Illinois Public Service Commission.  "You must learn how and where to save, just as you learned ways to hold down fuel and electricity bills in the energy crisis."

The first step is to understand what has happened so far.  In a nutshell, the Bell System--that might marriage of AT&T's local and long-distance service--was dissolved on January 1 to settle a 1974 anti-trust suit by the U.S. Department of Justice.  AT&T's 22 local operating subsidiaries--the Jersey Bells and Southwestern Bells that are "the phone company" to 8 out of 10 telephone customers--are now totally independent.  Under the divestiture, they have been regrouped into 7 new regional companies with names such as US West and Ameritech.

These companies are as legally separate from AT&T as the 1483 independent phone companies already serving primarily the thinly populated half of America's geography not covered by the now-defunct Bell System.  AT&T keeps long-distance service, plus Bell Labs (its renowned research arm), and Western Electric's 21 plants for making telecommunications equipment.  For now, the bills from local phone companies will continue to include AT&T's charges for long-distance calls.

What does this all mean to phone costs and service?  This much seems probable:

Local phone bills will double over the next few years.  Contributions from AT&T's profitable long-distance revenues, an average of $7 per month per customer, enabled the old Bell System to offer low rates for local phoning.  But with divestiture, local operating companies must make do without subsidy.

They will recoup part of this revenue through "access fees," mostly paid by AT&T and other long-distance firms for connecting subscribers to their lines.  But in addition, $7 billion in local rate hikes are pending in state regulatory bodies.  While efforts are being made to preserve low-cost local service--including a bill in Congress to disallow access fees--the operating companies' need to stand on their own will require upward adjustments.

To preserve affordable phone service for all, many states are expected to copy California's "life-line" for shut-ins and low-income people.  These subsidized users can make up to 30 local calls for $2.50 monthly.  But expect to see phone gabbers pay more for loquaciousness.  Unlimited local calling will most likely be more expensive.  Yet those who keep local calls short and infrequent will still have opportunities to hold down phone bills.

Long-distance harges, by contrast, will hold steady or even come down.  AT&T is faced with competition from over 100 rival long-distance carriers, such as MCI and GTE SPrint.  Some of these competitors, attracting customers with bargain rates, have their own microwave saucer antennas to link phoning between major cities by radio.  Others retail at discount circuit time bought wholesale from AT&T.  Having skimmed eight percent of AT&T's long-distance business, mostly commercial accounts, they're now vying for residential customers.

Before divestiture, Bell forced competitors' clients to dial 23 digits for each call.  Soon they'll dial just one digit plus area code and number.  Even when an AT&T rival doesn't reach the area you're calling, it may take the call inexpensively most of the way, and then use AT&T.  A new computer service used by business puts calls instantly on the cheapest carrier to the party dialed, on the second-cheapest if that circuit's busy.  Expect this service to spread to residential phones.

Other carriers are listed in your Yellow Pages, which will now be published by local phone companies, not AT&T.  Though many rivals have sighn-up and monthly fees that only business can afford, some are in reach of households spending as little as $25 a month on long distance.  Now only push-tone phones work for carriers other than AT&T, but interconnections for all phones, including rotary-dial units, must be provided by 1986.

Because stable or cheaper long-distance rates will offset higher local calling, many phone bills will stay close to today's average $37 monthly.  But expect rural areas and small towns to pay more than the average.  Best breaks will go to heavily populated areas, just as you can often fly cheapest where air traffic is heavy.

Fortunately, you have an instruction manual--and it's free.  The front pages of your phone book describe what each aspect of phoning costs.  You find low-budget alternatives to unlimited local service, the premiums for operator assistance, the rates for more expensive hours.  A Philadelphian learns, for example, that calling person-to-person to Pittsburgh adds $2.25; a credit-card call, an extra 30 cents.

Many phone books also show the high cost of renting equipment.  Even a 15-year-old basic-black instrument costs as much as $20 a year in rent, decorator models, over twice that.  But you can usually buy your phone for the charges you'll save in the next 12 to 18 months.

In shopping for your phone at the AT&T and new operating company phone stores, or at other suppliers, be sure to compare warranties (sometimes only 60 days), voice quality (it varies widely), bells (some are barely audible).  If your present phone is still "hard-wired" to a baseboard junction box, you must install a jack to use new phones.  For this, phone companies sell kits--often costing about $5--for doing the job yourself with only a screwdriver and wire snippers.

There will be changes in repair service.  Even before divestiture, the days when a $15,000 phone-company truck arrived to replace a broken phone were ending.  Expect free house calls only for trouble in outside lines or in company-installed interior wiring.  If you want new wiring, you could pay as much as $23 for the first 15 minutes of the repairman's time and $9 per quarter-hour thereafter.  You may do much better with an electrician.

Why, if there's to be this hassle, did Uncle Sam go to such lengths to break up AT&T?  The answer is complex.  Ma Bell had her good and bad sides.  Her brilliance was in guiding the telephone from the ingenious invention of Alexander Graham Bell in 1876 to the low-cost necessity of the 20th century.  Phoning in the United States takes only about a third as much of the family budget as in Britain or Italy, only about a seventh as much as in France or Japan.

In technology, AT&T had no peer.  Bell Labs, with 2600 Ph.D.s among 12,000 scientists and engineers, gave the world the first talking movies, the artificial larynx, the transistor that made the computer age possible.  In World War I, 7500 phone people became virtually the entire U.S. Army Signal Corps in France.  In World War II, Bell Labs greatly improved British-invented radar, and Western Electric made half of U.S. radar equipment.

But another side to AT&T kept it constantly in hot water.  Moving into radio transmission during the 1920's, the company refused to carry broadcasts by long-distance lines to stations it did not own.  Bowing to pressure, AT&T got out of the radio business.  Even after retreating to the telephone, putting down rivals proved Ma Bell's undoing.  In 1968 a Texas company, Carterfone, successfully challenged in the Supreme Court Bell's unwillingness to pass along calls from the little firms's radio-telephone subscribers.  The next year the FCC authorized MCI to establish competing long-distance service between Chicago and St. Louis using microwave towers.  "But Bell gave us lousy interconnections and overcharged us," MCI chairman William McGowan then complained.  In a different ruling in 1980, for similar violations, MCI won history's largest damages award: $1.8 billion.

Though MCI has yet to collect from AT&T (the amount is now under appeal), McGowan's victory opened the door to the flood of long-distance competitors.  Meanwhile, the federal government pressed its anti-trust suit.  Finally on January 5, 1982, AT&T chairman Charles Brown told his stunned operating-company presidents; "We are signing an agreement with the Justice Department to divest."

Will the public benefit from AT&T divestiture?  Already, there are indications that opening the hughe telecommunications market to competition will be a shot in the arm for the economy.  MCI, for example, will invest more than a billion dollars in new long-distance facilities.  The Southern New England Telephone Co. will put light-wave transmission along railroads in 20 states.  Many companies are elbowing into phone links with computer data banks and into "cellular" radio, which vastly expands the capability of mobile-phone systems and promises cordless units for briefcases and the first car phoning free of frequent busy signals.

AT&T plans to inject the brains and muscle of Bell Labs and Western Electric into new high-tech businesses.  Just as competition after banking deregulation won savers higher interest rates, the benefits from the breakup of the phoning monopoly should more than offset any temporary headaches.  "It's not going to be easy," says AT&T's Brown, "but we are going to try our hardest."