Despite C&P claim, fiber-optic network won't be free 'Distance learning' project touted as free

August 08, 1993|By John W. Frece and Thomas W. Waldron | John W. Frece and Thomas W. Waldron,Staff Writers

Maryland telephone customers will foot some of the bill for a new statewide telecommunications network that the president of the Chesapeake and Potomac Telephone Co. had promised would have "absolutely no impact on basic ratepayers."

C&P officials acknowledged last week that a favorable ruling by Maryland utility regulators in late March will allow the company to finance installation of a fiber-optic network, at least in part, with money that otherwise would have been refunded to telephone customers from excess profits.

The Maryland Public Service Commission ruling came just as C&P and the state were entering the final stages of their secret negotiations on the proposed fiber-optic network.

Three months later, when excited state officials joined C&P executives to unveil a "distance learning" project in which every high school and college in Maryland would be linked by fiber-optic cables, C&P President and Chief Executive Officer Frederick D. D'Alessio boasted that his corporation would put up the $40 million to build the network.

The project, he said, would have "absolutely no impact on basic ratepayers."

Neither he nor state officials made any mention of the PSC's March 30 ruling, which permits C&P to take an unusually rapid write-off of a huge pension obligation.

Both Mr. D'Alessio and Gov. William Donald Schaefer, a driving force behind the agreement, publicly thanked PSC Chairman Frank O. Heintz for his help in getting the project off the ground.

In late January, C&P and the Schaefer administration were singing a different tune. The PSC, on Jan. 22, issued a broad decision that limited the profits the company is allowed to keep. That prompted an immediate appeal from Mr. D'Alessio, who said C&P could not afford to improve its telecommunications infrastructure unless portions of the ruling were reversed.

Shortly after the Jan. 22 decision, state economic development Secretary Mark L. Wasserman telephoned Mr. D'Alessio to assess the damage. The two talked about "what effect will this have on the pace of deployment of fiber-optic infrastructure," Mr. Wasserman said.

Two months later the commission revised the January order, an action Mr. Heintz acknowledges is rare.

A key part of the March 30 revision, which went unreported at the time, allowed C&P to write off a $235 million pension expense over only six years -- much faster than virtually any other utility is doing.

The company's accelerated write-off holds down profits, eliminating its need to pay an estimated $15 million in refunds that would have gone to customers for excess profits of the past two years.

"That is ratepayer money that ought to be refunded," said Mark N. Cooper, research director of the Washington-based Consumer Federation of America, an organization that has been skeptical of efforts by several phone companies to invest heavily in fiber-optic networks. "You've got all these old people and poor people who deserve a rate cut. They don't want to give them one."

The refunds -- totaling $15 million -- would have averaged roughly $5 for each phone line for the two-year period ending last September, and potentially more in the next four years, if the company remained highly profitable.

"Are the ratepayers subsidizing this project with this six-year amortization? The answer is absolutely yes. It frees up cash to invest in whatever they want," said Liam Burke, a telecommunications industry analyst for Ferris Baker Watts.

But the company is using the money for other capital projects as well, Mr. Burke said. C&P officials likewise stressed that the distance-learning project is a significant but small part of building plans that the March ruling made more feasible.

Transform teaching

The state hopes to transform traditional teaching through the use of interactive video. By linking schools with high-capacity fiber-optic cables, courses offered in one part of Maryland could be transmitted to students elsewhere who could interact as if they were in the same room.

For C&P, immersed in a national race against other telecommunications companies to replace standard copper wire with optical fibers, a network connecting every sizable neighborhood in the state holds the potential for lucrative business opportunities.

Mr. D'Alessio said C&P intended to go ahead with the network whatever the PSC decision, but said the March revision allowed the project to be speeded up by at least three years.

"If we didn't get the kind of reconsideration we did," Mr. D'Alessio said, "we'd clearly be moving ahead with distance learning, but perhaps not at the same pace we hope to do it."

Expediting the project was important to C&P for competitive reasons. It also was important to the Schaefer administration, which wants the governor to get credit for putting the futuristic network substantially in place.

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