More Din for the Baby Bells
On Christmas Eve the
Federal Communications Commission
proffered a gift to the phone industry that further clouded the financials and investment potential of regional bell operating companies, the "Baby Bells."
The federal agency launched a long-awaited effort to slash "access charges," the fat fees that long-distance carriers must fork over to Baby Bells in return for the Bells' completing their customers' calls.
For years
AT&T
(T:NYSE) and other long-distance giants have complained that they are being gouged for 35 to 40 cents on each dollar of customer revenue. Industrywide, the Baby Bells rake in about $23 billion in access charges per year. Not surprisingly, U.S. West (USW:NYSE) and its six sibling Bells argue that the fees are needed to pay for the use of their valuable networks.
The FCC announcement will surely raise the fight among carriers and consumer groups to a feverish pitch. But for investors the hoopla boils down to a simple reality--the Bells' cost structure is too muddled for anyone to gauge clearly their stock potential.
It's not just the access charge issue. Landmark federal legislation and complementary actions in many states this year paved the way for increased competition in the local phone business. The Baby Bells are being forced to lease their infrastructure to new rivals, and they are bitterly opposed to the price ranges proposed by the FCC.
According to a study released by the
Consumer Federation of America
, collectively the Baby Bells have enjoyed "excess profits" of $2.8 billion annually, by overstating the costs of their networks to state and federal regulators.
For its part--on both the leasing and access-charge issues--U.S. West says that if one income stream is cut, rates must rise somewhere else to ensure that the company does not go broke serving its customers and its own competitors.
As long as the debate rages, investors will have a tough time gauging the Bells' balance sheets.
Indeed, the market didn't make much of the FCC announcement. Today U.S. West shares closed at 31 7/8, up 1/8; Nynex (NYN:NYSE) was up 3/4 to 47 3/4.
By Kevin Petrie