Word: breakups
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Hanging over the bargaining is AT&T's impending breakup. To settle an antitrust suit, AT&T's local operating companies will spin off into seven independent regional units next Jan. 1. Because of uncertainty over how profitable each will be, both labor and management seemed anxious to strike the best deal they could before the divestiture occurs...
Wall Street welcomed the news, which eliminated one last shred of doubt over the AT&T breakup. On the day of the company's announcement, AT&T shares were the most actively traded on the New York Stock Exchange; their price jumped some $2, to about $63. When the divestiture occurs, stockholders will still have the same number of shares in the new AT&T as they had in the old company. In addition, investors will receive one share in each of the seven new regional companies for every ten AT&T shares they now hold...
...local companies have already applied to state public service agencies for steep rate increases. In Texas, Southwestern Bell wants to boost rates by $1.2 billion, claiming that the AT&T breakup will cut its revenues 45% while reducing operating expenses only 15%. In California, Pacific Telephone & Telegraph is seeking an increase of $1.2 billion, which would double the current monthly charge of $7 a household. Some observers, like FCC Chairman Mark Fowler, consider the requests opportunistic. Said he: "I suspect a hefty portion of these proposed increases may be an effort by the local companies to use the dramatic changes...
Judge Greene also handed down rules that will affect the cost of local telephone service. Many groups fear that the breakup of the phone company will result in higher local rates since artificially high long-distance prices have traditionally subsidized artificially low local charges. Such financial support will disappear after January, when the long-distance service is separated from the local one. Said Greene: "One of the court's principal aims throughout the public interest process has been to ensure that divestiture would not bring about or contribute to local telephone-rate increases...
...final word on restraining local telephone rates, though, may come from Congress. Legislators are already considering plans to provide subsidies to low-income customers or to telephone companies with high operating costs. Some action could be taken before the big breakup occurs next New Year...