A move to uphold quality of service Bell Atlantic seeks regulation relief amid PSC staff challenge

April 14, 1996|By Michael Dresser | Michael Dresser,SUN STAFF

Americans generally take high-quality telephone service for granted. Pick up a phone, you get a dial tone, the call goes through. You can't count on that in much of the world.

Marylanders are among the most favored of Americans when it comes to phone service. Most are served by Bell Atlantic Corp., a company that is widely regarded as one of the best of the regional Bell companies in terms of service. Unlike some of its peers, the company takes genuine pride in the quality of its network, boasting in ads about its 99.99 percent reliability.

But this week Bell Atlantic will go before the Maryland Public Service Commission to argue in favor of a new form of regulation that could create powerful economic incentives to cut corners on network maintenance and other aspects of telephone service.

The company will likely win that change to "price cap" regulation. That has been the trend through the United States in recent years, because traditional "rate-of-return" regulation, which controls a firm's profits, is widely regarded as a roadblock to innovation and competition.

The commission's staff, supported by the Maryland People's Counsel and most of Bell Atlantic's prospective competitors, is urging the PSC to exact a price for regulatory relief. It wants the commission to adopt tough new quality standards and to wield a big stick with which to enforce them.

Bell Atlantic is fiercely opposing the proposed standards, contending that they are unfair, unnecessary, counterproductive and economically burdensome. It objects to the proposed penalties, asking, in effect: Why not a carrot?

Service quality is only one of the issues the PSC will address during six days of testimony and five evenings of public hearings in what might be the most important and complicated telephone regulation case in decades. Commissioners will have to deal with a laundry list of economic issues that have received the bulk of the attention in prefiled testimony.

To ordinary Marylanders, however, the service quality issues could be most important. To borrow from a Bell Atlantic cellular ad, low rates don't matter "unless the call goes through."

The staff's proposal is not based upon allegations of poor performance by Bell Atlantic -- although it did note an increase in complaints to the PSC during 1995. Rather, the staff's arguments rest on the economic pressures created by price caps.

In written testimony, PSC staff member Anthony Myers said traditional rate-of-return regulation encourages telephone companies to place a heavy emphasis on service quality because their investments will be recovered from ratepayers. Under a price cap, he said, utilities are under pressure to reduce costs because that's what determines their profits.

"Price cap programs must be structured to prevent utilities' cutting costs to the extreme detriment of quality," he said. He testified that several other states outside Bell Atlantic territory -- including Wisconsin, Ohio and New York -- experienced "degraded" levels of service after adopting price cap regulation.

John Dillon, vice president for regulatory matters at Bell Atlantic-Maryland, said consumers can have confidence that it won't happen here.

"We, Bell Atlantic, are not going to do anything that causes our service to slip," he said. He argued that the onset of competition will provide ample incentive to maintain service quality.

But a report issued last month by the National Regulatory Research Institute (NRRI) in Columbus, Ohio, found that competition alone is not enough to guarantee the level of telephone service Americans are accustomed to.

"Many areas of the United States are likely to remain the monopoly domain of incumbent local exchange carriers for the foreseeable future," it noted.

In fact, much of the competition coming Bell Atlantic's way will be highly dependent on the company's own network to reach the end consumer. AT&T, for instance, plans to enter the Maryland market as a reseller of Bell Atlantic's phone service. Thus, AT&T's outages will be the result of Bell Atlantic outages, but that could be lost on AT&T customers. That is one reason AT&T and MCI support the staff's position.

Not until another company builds a second network that reaches the home and office will residential and most small business customers have a fully competitive choice. The only Maryland jurisdictions where such competition seems likely in the near term are Baltimore, Harford and Howard counties, where Comcast Corp. is upgrading its network in a way that could let it provide telephone service.

The NRRI study also raises concerns about disparities arising between heavily contested urban areas and less competitive rural areas and poor neighborhoods. "High-cost and low-profit areas are likely to see a stagnation or even degradation in quality," the report says. In addition, the report predicts that companies will shift resources such as service personnel away from residential customers to the business market.

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