Communications revolution Md. panel to loosen Bell Atlantic's grip

November 03, 1996|By Timothy J. Mullaney | Timothy J. Mullaney,SUN STAFF

In the past dozen years, consumers have lived through a revolution in the way they buy long-distance telephone service.

In Maryland, the same revolution is coming to local phone service, and it will speed up dramatically Friday, when the state Public Service Commission will decide two separate cases that will overhaul the way it regulates Bell Atlantic Corp., Maryland's traditional local phone service monopoly.

For consumers, it will mean lower prices, says Ross L. Baker, AT&T director of Maryland government affairs.

One PSC order is expected to scrap a state regulation that limits Bell Atlantic's profits. The regulation forces the company to pass along any savings from more efficient technology to consumers -- but also lets it pass along most cost increases.

Under the expected change, Maryland would impose a formula used in 39 other states: a price cap system combined with the incentive to make cost-cutting innovations.

Bell Atlantic may be required to cut annual rates by $115 million or more and be forbidden from raising residential rates for as long as it holds near-monopoly power. But the company would be allowed to make unlimited profits.

"If we lose our shirts in the marketplace, it's on us," said Bell Atlantic-Maryland president Daniel J. Whelan. "On the other hand, if we make a bundle we get to keep it."

The other order will resolve arbitration cases brought by AT&T Corp., MCI Communications Corp. and other carriers against Bell Atlantic under the federal telecommunications reform law passed earlier this year. That order will set some of the key prices at which Bell Atlantic must sell specific services to its new competitors.

While most businesses would balk at giving new players the tools to compete against them, local phone carriers have no choice. In a bid to make it possible for new carriers to enter the business without multi-billion-dollar capital investments, the federal law forces traditional monopolies to sell either their full local phone service or specific phone services at wholesale rates to competitors, who will resell them to businesses and residential customers.

"Costs of providing telecommunications are declining much faster than inflation," said Michael Travieso, head of Maryland's Office of the People's Counsel, which represents residential ratepayers before the PSC. "We need a plan that forces Bell Atlantic to pass on the declining costs that are rampant in the marketplace."

Travieso's logic reflects attitudes Bell Atlantic has encountered from both competitors and from the PSC. Whelan has often found himself on the defensive, especially as he insists Bell Atlantic-Maryland can't afford the $115 million-plus rate cut proposed by the PSC staff or the $218 million cut endorsed by the People's Counsel.

"They assume in their calculations there's no competition in the local market," Whelan said. He said setting rates that assume Bell Atlantic will still dominate the market after competition and must be restrained by the state is part of the system Maryland is supposed to be abandoning. "It's like an alcoholic saying, let's have one last drink before we go on the wagon."

Instead, Bell Atlantic has proposed a plan that Travieso says will virtually guarantee annual rate increases for local service -- the first in Maryland since 1986 -- beginning in 1998.

Whelan said Bell Atlantic needs flexibility to deal with unexpected economic conditions.

"We are in business to make money," Whelan said. "Something that forces us to cut rates every year, when [traditional] regulation would not make us do that goes against any investment that is good for the state."

The PSC staff declined comment for this article. But in a legal brief, it dismissed Bell Atlantic's plan, saying, "Bell's proposal cannot by any stretch of the imagination be deemed reasonable."

The biggest difference in the plans is how much to assume the cost of telecommunications equipment will fall each year.

Bell Atlantic wants a more lenient formula than most other states with price caps have approved, while other parties want a formula that assumes large declines in future operating costs, and cuts the price cap to reflect lower costs. Their projections assume inflation will remain stable.

"There's no business out there that gets protection from inflation," MCI regional public policy director Jay Young said.

MCI and AT&T especially want the PSC to cut the rates they have to pay Bell Atlantic to connect calls from the Bell Atlantic-owned wires to the long-distance carriers' interstate networks.

AT&T's Baker said current access charges are ten times higher than what MFS Communications Co. pays Bell Atlantic for a virtually identical service. MFS, which is not a major long-distance carrier, is one of the handful of early competitors against Bell Atlantic and other Bell operating companies in the local service market.

Both AT&T and MCI have promised to pass on any cuts in access charges to consumers, But Whelan claims that they have not always done so when Bell Atlantic has cut access fees in the past.

Pub Date: 11/03/96

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