High-tech phone services: They sound wonderful, but who pays for the upgrade?

December 08, 1991|By Leslie Cauley

If Chesapeake & Potomac Telephone Co. wants to spend billions of dollars to upgrade its network so it can roll out more fancy, high-tech services, who should get stuck with the bill: C&P or consumers?

"The idea of having a state-of-the-art phone network in Maryland has a lot of charm," said People's Counsel John M. Glynn, who represents ratepayers before the Public Service Commission. "But the question is: Who's going to pay for it? Because there's no question if we do what C&P proposes that phone bills will be higher than they otherwise would be."

To be sure, the 20-year, $8 billion improvement plan will allow C&P to sell a lot of new services to customers. Backed by a modernized network, C&P says it could provide two-way video, high-definition television, video on demand, video mailboxes, medical imaging and other interactive services. Other possibilities: Telecommuting centers for workers, mobile medical testing (at bedside, home or in cars), and long-distance learning (piping in classes over video lines) for educational institutions.

Such improvements, C&P says, are crucial to Maryland's economic development. And the company has some powerful allies, including Maryland Economic Growth Associates, a private, Baltimore-based economic development organization.

But before proceeding with its upgrading plan, C&P wants some regulatory flexibility and accounting changes approved by the Public Service Commission. If the PSC agrees, that could translate into higher phone rates over the long term.

As part of the debate over modernization, state regulators must answer some tough questions: How much technology do consumers really want, or need, from the local phone company? Do consumers really want or need, for example, to buy interactive video products from the phone company when other companies sell similar services?

And who really benefits when C&P sells these expensive new services? The public, C&P or Bell Atlantic stockholders?

Many questions about costs have yet to be answered. For example, if C&P wants to develop and sell enhanced services to bolster revenues, and consumers want to buy them, who should pay for the technology upgrades? C&P or its customers? And when? Before the market for these new services develops, or after?

Maryland already claims one of the most technologically advanced telecommunications networks in the world. It's the result of modernization efforts by Bell Atlantic Corp., the parent company of C&P, that began almost as soon as the ink was dry on the 1984 divestiture agreement that broke up giant AT&T.

Because of those early efforts, Marylanders today have access to a variety of telecommunications services, such as Caller ID and Answer Call, C&P's version of an answering machine for the home. Phone customers in some other states don't.

But those conveniences have come at a cost.

Marylanders pay about $17 a month for basic phone service, one of the most expensive rates in the nation. In the contiguous United States, Delaware (also served by Bell Atlantic) had the highest monthly rates at $18.12, while North Dakota had the lowest at $14.56, according to a 1989 survey by the United States Telephone Association.

In Maryland, the higher rates have been used to help pay for modernization of C&P's network.

C&P doesn't need permission from state regulators to further modernize its network. But it does need permission if it wants to pass along any of the costs to consumers.

C&P has sidestepped crucial financing questions. At a commission hearing last month, C&P didn't spell out how it intends to pay for its latest round of upgrades. But it did suggest that it needed regulatory flexibility from the commission and a faster depreciation schedule on existing equipment, both of which could affect ratepayers.

Likewise, the company has not spelled out why it should be permitted to keep all profits generated from new services (in the regulated world of C&P, profits are used to subsidize basic phone rates).

Meanwhile, the company has left open the option of raising local phone rates to cover the cost of the upgrades. In comments to the commission last month, Frederick D. D'Alessio, C&P's president and chief executive officer, said only that C&P "will remain committed to keeping basic rates affordable."

But the company has been long-winded on the warm and fuzzy parts of its plan.

In comments submitted to the PSC in October, C&P painted a rosy picture of how a modernized infrastructure might benefit Maryland and improve the quality of life. The network will propel the state to the forefront of telecommunications, acting as a magnet for new business and investment, C&P said.

"I am convinced that modernizing the local network can improve the Maryland economy," Mr. D'Alessio told state regulators last month.

That view was shared by some of the more than 25 parties that submitted comments to the commission about C&P's modernization plan.

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