The $50 rebate Chicago-area phone customers await from Ameritech Corp. may not materialize until May or June, but it could be coupled with another bonus: a reduction in the basic phone rate, state regulators decided Tuesday.
While the Illinois Commerce Commission considers arguments against the $50 rebate from Ameritech’s competitors, it will also weigh evidence before them on Ameritech’s rate structure for basic phone service.
In 1994 the ICC adopted price caps for Ameritech’s phone rates as a replacement for traditional regulation. This is the first ICC review of the price cap system.
While Ameritech has argued that its price-capped rates should continue essentially unchanged, consumer groups advocate a dramatic reduction that could lower basic service rates by up to 30 percent.
The Citizens Utility Board and its allies say that while basic rates have been frozen for seven years, technology has driven down Ameritech’s costs of providing service, allowing it to reap huge profits that give it a rate of return topping 40 percent.
Ameritech disputes that, asserting that its rate of return for basic service is less than 6 percent.
A study by the ICC staff suggested that if Ameritech rates were still regulated in the traditional way, they would be $800 million lower than they are. But the staff also asserted that current rates are in a “zone of reasonableness” and need not be reduced.
This argument seemed odd to at least two of the five commissioners.
“I am uneasy and troubled by this,” said Commissioner Ruth Kretschmer. “Illinois law requires that customers as well as the company reap benefits. I’m not saying we need to reduce rates by $800 million, but I’m troubled at just pushing this aside.”
Terry Harvill, another commissioner, said that the commission will need something stronger than a “zone of reasonableness” assertion to cast aside the arguments for a rate reduction.
Also Tuesday, the ICC was told that hearings on the proposed one-time $50 rebate will likely last until April.
Although the $50 rebate has been endorsed by Ameritech and by consumer advocates, it is opposed by Ameritech’s competitors, who will begin making arguments before an ICC administrative law judge next week.
The $50 rebate is related to the 1999 takeover of Ameritech by SBC Communications Inc. When the ICC approved that deal, it ruled that some operational cost savings associated with the merger should be passed along to consumers.
Ameritech executives have disagreed with consumer advocates over the actual amount of savings that should be passed along to customers. Earlier this month the company reached an agreement with CUB, the City of Chicago, Cook County state’s attorney and Illinois attorney general to make a one-time payment of about $50 per residential customer line that would settle the matter.
Ameritech’s rivals–Z-Tel Communications Inc., AT&T Corp., WorldCom Inc. and McLeod USA Inc.–contend that this will hamper the fledgling competition in local phone service that now exists because consumers will want to stick with Ameritech to get the $50.
The rival phone companies had asked the ICC to dismiss the deal out of hand, which the commissioners declined to do.
The commission agreed to work on the question of a basic rate reduction at the same time as hearings are held on the one-time $50 rebate proposal.
