Bell Proposes Rate Freeze and Eased Controls

Pacific Bell proposed a host of changes Monday in its residential phone service--including a plan to freeze the rate for basic service at $8.35 a month until 1992--in exchange for relaxed regulation by the California Public Utilities Commission.

The proposal drew immediate criticism from representatives of two consumer groups.

Under the proposal, a modification of earlier recommendations, Pacific Bell also would increase the distance over which phone customers can place local calls at no extra charge. It would increase from 8 to 12 miles.

In addition, the proposal would remove the present charge of $1.20 a month for TouchTone service, a necessity for customers who want additional telephone features such as call-forwarding. Finally, Pacific Bell would speed installation of modern switching machines throughout its state network over the next three years and relinquish its monopoly in providing local toll call service.

As a result, companies such as American Telephone & Telegraph, US Sprint and MCI Communications would be able to offer service between such communities as West Covina and Santa Monica.

Pacific Bell, in exchange, would get to keep half of any earnings above a profit level specified by the commission. Currently, its profits are capped by the PUC and excess earnings have to be refunded to customers. The company said removing limits on its profits would give it an incentive to cut costs through improving its technology and other means.

Regulatory Hurdles

In addition, the PUC would remove some of the regulatory hurdles that have slowed Pacific Bell’s ability to offer new services. The PUC also would speed the review of the company’s rate requests.

Sylvia Siegel, executive director of Toward Utility Rate Normalization, a coalition of consumer groups, decried the proposed rate freeze.

“Our rates should be going down, not just staying static,” she said. “So, forgoing regulation in favor of a questionable freeze is not a good deal for consumers.”

Pacific Bell says its average residential customer’s bill is about $30 a month. It consists of the basic service rate of $8.35, local toll charges and fees for special services. Consumer advocates have sought cuts in the rates charged by Pacific Bell, the state’s largest phone company, because low inflation and improved productivity have reduced its expenses.

Minority Viewpoint

Robert Gnaizda of Public Advocates, which represents a coalition of organizations representing minority groups, added that Pacific Bell’s proposal would give the PUC too little oversight. “What they’re proposing is inadequate,” he said.

Expanding the zone for unlimited local calling to 12 miles is “meaningless” in such sprawling metropolitan areas as Los Angeles, Gnaizda said. “The expanded zone for unlimited local calling should cover the metropolitan area where people live.”

In a series of news briefings around the state Monday, Pacific Bell portrayed its proposal as “a bold, innovative plan” that would be “good for consumers, competitors, regulators and the state.”

“What we are proposing is the most significant change since the break-up of the Bell System in 1984,” said George Schmitt, vice president for regulatory issues. Schmitt said the company is not seeking deregulation but a necessary overhaul of a regulatory system that traces its roots to the National Communications Act of 1934.

Patching the System

“Much has changed in the past few years, but we keep trying to patch the old regulatory system,” he said. “We don’t want deregulation, but we don’t want to keep patching.”

Robert B. Morris III, an analyst with the investment banking firm of Goldman Sachs, was skeptical of the proposal to open the local toll-call market to competition. If competitors were allowed to enter the market, he said, Pacific Bell could lose a large part of the revenue from that market--revenue that Pacific Bell maintains is part of a $1.1-billion annual subsidy to keep the cost of basic local phone service widely affordable.

“There’s a real risk to the company, and therefore to its shareholders, because of the subsidy issue,” Morris said.

Schmitt acknowledged “a substantial risk,” but said the advent of competition for local tolls is inevitable. “Its time has come.”