Advertisement

A Regulatory Busy Signal Blocks Phone Progress

Share
<i> Sam Ginn is chairman and chief executive officer of Pacific Telesis Group. </i>

Californians are justifiably proud of their state as the cradle of the electronic revolution. That revolution is ushering in the Information Age, an era of unlimited communication that will surpass the Industrial Age in its impact on global development.

But five years after divestiture, California is hamstrung by a regulatory process that doesn’t account for burgeoning competition and overlooks the time lag involved in implementing new technologies. We are trapped by an arcane process that serves neither consumers nor businesses.

California’s crucial telecommunications infrastructure--the highways on which information travels--is woefully lagging in parts of our state. We trail some of our commercial rivals such as Japan, which plans to spend $100 billion to modernize its infrastructure by the year 2000. We’re losing ground to more than 36 states that have revised their regulatory framework and stepped up commitment to modernize their telecommunications networks.

Advertisement

About 242 communities in California don’t have enhanced 911 service. While some people can dial 911 and have their home address flash on the screen of an emergency operator who can direct police or other rescue services to the scene, others don’t have this system.

In Humboldt County, Bakersfield, Morro Bay, and even parts of Sacramento and the San Francisco Bay area, businesses don’t have services such as “call forwarding” and “conferencing calling.” New businesses will not locate in communities hobbled by horse-and-buggy communications. What is at stake are jobs and the future economic health of our state.

No one in these technologically impoverished communities will have the opportunity to use any future services such as monitoring of the sick at home via telephone connections, access to electronic libraries or special services for disabled people and those not fluent in English.

Outmoded switching technology is the culprit. Simple enough to solve, one might think. Yet, using traditional regulatory criteria, it will be a long time before we will be able to economically justify modernizing the network in those communities.

Virtually every telecommunications service, with the exception of dial-tone to the home, is competitive. But telephone companies in California can’t price their services accordingly. Instead, they must endure lengthy proceedings to obtain permission from the California Public Utilities Commission to raise or lower prices.

Can we recover from this telecommunications deficit? The answer is emphatically yes. Our success will depend on our ability to introduce a forward-looking regulatory policy that provides an incentive to telephone companies to increase operating efficiencies and enables them to build a communications system second to none.

Advertisement

The California Public Utilities Commission has an opportunity to approve soon a plan submitted by Pacific Bell that would go far toward providing Californians a feature-rich telecommunications network and more efficient regulatory process. The plan was attacked by the California Cable Television Assn. at recent hearings.

Among the association’s arguments is that Pacific Bell’s hidden agenda is to enter the cable television business. Pacific Bell has no intention of providing cable programming but would seek to provide distribution capability to cable operators.

Pacific Bell’s California Plan for Rate Stability does not propose deregulation, but a different form of regulation. It would lead to lower or stable charges for most users and improved service. If it is approved, Pacific Telesis stands ready to invest more than $200 million a year to bring the state’s network up to standards within three years--an investment that we are not allowed to make under the current regulatory scheme.

Under the plan, the Public Utilities Commission would still regulate all future rates. The plan would freeze residential rates through 1992 and expand the free calling area and make TouchTone service free. It would allow us to lower some rates to business customers to meet competition, while gradually raising other business rates that do not cover our costs.

The plan would substitute a simpler process for the 78-year-old system of endless legal proceedings that minutely examine costs (the current rate case has dragged on four years). The commission would set a benchmark rate of return, or profit level. If the telephone company operated so efficiently that it exceeded that level, the extra profit would be shared equally by the public and its shareholders. If Pacific Telesis failed to earn the benchmark rate, it would absorb the shortfall and not ask for rate relief.

Regulatory reform is a “win-win” situation. When the providers of telephone service have incentives to improve efficiency and increase service, everyone gains. If the regulatory process isn’t changed soon, many of us will continue to be denied the full range of services technology can offer, and California will be hard-pressed to preserve its place as a leader in the world economy.

Advertisement
Advertisement