WASHINGTON — Verizon Communications, SBC Communications Inc. and other large phone companies likely will get a boost this month as U.S. regulators begin phasing out a subsidy system that cost the companies billions annually.
The Federal Communications Commission has said it plans to revamp, by the end of this year, payments local companies make to each other for costs associated with processing calls. The plan being considered at the agency, to phase out fees, would eliminate about $1.4 billion in 2001 revenue from Teligent Inc., Winstar Communications Inc. and other local phone rivals, Legg Mason analyst Daniel Ernst said in a note to clients last week.
The large regional companies complain that some smaller companies take advantage of the system, catering to Internet service providers so they never have to compensate the big carriers. Many rivals fear that any changes in the system could hurt competition, putting some small players out of business.
"I think the FCC is sensitive on impacts to competitive carriers but that they're leaning toward phasing out these payments," said Paul Glenchur, an analyst with Schwab Capital Markets' Washington Research Group. "I don't think they would slash cut it."
The agency is contemplating a plan that would end the payment system within two years, Ernst said. It likely would limit the fees for two years and then end all the payments, he said.
Under a system known as reciprocal compensation, when a Verizon customer calls a Teligent subscriber, Verizon pays Teligent a fee. If a Teligent customer calls a Verizon user, Teligent pays.
Calls placed to the Internet prompt a one-way payment. Companies with customers using dial-up connections pay millions to smaller carriers that serve the Internet provider. By comparison, few or no calls are sent from the smaller companies to the big carriers. The regional companies unsuccessfully pushed for legislation this year that would wipe away some of the payments.
Any FCC rules would help stem action by Congress, Glenchur said.