Deregulation May Increase Telephone Rates

When Daniel P. Chung '00 calls his southern California home, he places a collect call, then hangs up when the operator asks his mother to accept charges.

His mother, knowing that her son wants to speak with her, then makes the call on her lower rates.

Chung may consider Harvard's long-distance rates high enough to warrant such complicated maneuvering, but other students say that compared with other schools', Harvard's rates are acceptable.

Peter H. Takeyama '98, who studied at Yale in his first year at college, said that when he transferred, a minute of calling time to Japan cost 10 cents less at Harvard than at Yale.

"Harvard offers a pretty good rate for international calls--it's not unreasonable," he says.

Not only is there no consensus on the value of Harvard's telephone services, but the confusion may only increase with the recent renegotiation of Harvard's long-distance contract with MCI and with the 1996 Telecommunication Act, which takes effect Jan. 1.

The act--which is intended in part to deregulate long-distance service across America and to help subsidize telecommunications hook-ups for local libraries and schools--may create an unforeseen side effect: higher rates for Harvard students.

Rising Rates?

Under the Telecommunications Act, the Federal Communications Commission (FCC) is mandated to bring about two main changes, which are expected to have counteracting effects on Harvard telephone rates.

First, the act aims to reduce the charges that long-distance carriers pay to local phone companies, according to Nancy Kinchla, associate director of telecommunications for University Information Services.

Under the current system, local phone companies charge long-distance vendors on a per-minute basis. In the Boston area, for example, long-distance carriers pay Bell Atlantic $.035 per minute for every call that terminates in its service area.

The Telecommunications Act, however, will replace the per-minute charge with a per-line charge--long-distance vendors will pay local phone companies a fixed fee for every line that they service.

The long-distance companies plan to pass the per-line charges on to their customers, Kinchla says.

The second major thrust of the act mandates the expansion of a subsidy fund, known as the Universal Service Fund.

The current Universal Service Fund underwrites telecommunications in rural areas, but under the act it will also subsidize Internet access and data networks in schools and libraries across the country.

Money for the expanded fund will come from new charges that long-distance vendors will have to pay local phone companies--charges that will be passed back to the customers as a percentage of the total usage cost.

"None of this is great news for rates in the future," Kinchla says.

The Bottom Line

Because the subsidy only applies to municipal libraries and schools teaching kindergarten through the 12th grade, Harvard telephone users may have to pay the increased charges without benefiting from the subsidy.

"We think it would be particularly odd for higher education...to underwrite network implementations in education," Kinchla says.

But the implementation of the act is far from final, and Kinchla adds that the FCC seems to be "receptive" to the University's objection that many universities may be forced essentially to subsidize the Universal Service Fund without benefiting from its expansion.

According to Kinchla, it is too early to predict the net impact of the Telecommunications Act on students.

The FCC predicts a reduction in usage costs from the long-distance vendors, according to MCI's Web page, but this may be an overly optimistic prognosis.

Rates may fall when the local phone companies start charging long-distance vendors on a per-line rather than per-minute basis, but the expansion of the Universal Service Fund may more than offset any savings for customers.

"The Universal Service Fund, as advantageous as that is for schools and libraries, is a new financial liability that amounts to additional billions of dollars that must be collected from customers," Kinchla says.

The University is working to make the net result of the Telecommunications Act "revenue-neutral," Kinchla says.

"But with all the uncertainty in the rate structures, anything could happen," she adds.

Long-Distance Changes

This summer's contract renegotiation with MCI--Harvard's long-distance carrier--compounds the confusion surrounding student telephone rates.

Under the current system, Harvard figures its long-distance charges based on two criteria--calling distance and time of day.

But in the near future, Kinchla says, the Harvard Student Telephone Office (HSTO) plans to simplify long-distance service and offer students a choice between two long-distance plans. The first will charge a 29-cent per-minute day rate, with 12 and 13 cents per minute for evening and night calls, respectively. The second plan offers a 15-cent per-minute flat rate.

Harvard telephone users will save a total of $350,000 this year under the new plan.

Students often complain that they are dissatisfied with their long-distance rates, but Kinchla says that the HSTO's plan is the least expensive option.

Other long-distance vendors may offer very low flat rates, but fail to publicize the fine print.

According to Kinchla, these companies may limit the low rates to calls under seven minutes--a time frame that may benefit businesses but can prove expensive for students making extended calls to friends and family.

Pre-paid calling cards may also offer an attractive way to circumvent Harvard's long distance rates, but students usually find themselves paying more.

Although most phone cards advertise low per-minute rates, the savings are almost always offset by per-call fees that range from 70 to 95 cents.

"Even if you get a voice-mail message, that's 75 cents without even speaking to somebody," Kinchla says.

With the advantage of a large calling volume, the University has the leverage to negotiate long-term contracts with its long-distance carriers, Kinchla says.

Harvard currently receives long-distance service from MCI, and although both MCI and the University have an ongoing option to renegotiate, the contract protects students from the more frequent fluctuations of the long-distance market