Phone Firms Seek to Increase Rates for Households

Pacific Bell and GTE on Monday proposed radical shifts in California telephone rates that would reduce overall bills paid by businesses but sharply increase the basic monthly service fees paid by households.

Pacific Bell’s plan, among the largest phone rate changes in U.S. history, would raise California consumers’ basic residential monthly service charges by 60% over three years, to $13.35 from $8.35. But it would also reduce the cost of so-called local long-distance calls between 20% and 30%.

The rate restructuring proposals--which could take effect in 1993 if approved by the state Public Utilities Commission--are expected to add fuel to the debate on who should benefit from lower prices brought by telephone deregulation. Rates on local long-distance calls--those greater than 12 miles but within one of California’s 10 local phone-rate regions--subsidize low-cost local phone service, considered by many an essential utility.

The new plans would reduce or eliminate that subsidy and reward high-volume users of long-distance lines with lower rates.

Critics complained that the proposals would unfairly burden residential users. But Pacific Bell and GTE said increased competition caused by deregulation makes the changes necessary.

Consumer advocate Audrie Krause called the proposed increases “outrageous.” “The hardest hit will be on those on low incomes and the elderly,” she said, noting that the increase would follow a $3.50 monthly long-distance surcharge gradually imposed on all phone users since 1984.

Krause, executive director of a San Francisco-based group called Toward Utility Rate Normalization, said senior citizens groups are organizing to protest the rate hike proposals at hearings to be held by the PUC in Santa Monica and elsewhere in the state. The commission’s hearings, starting in October, are scheduled to continue through next May.

Pacific Bell and GTE said they need more rate flexibility in order to keep customers.

“We’re looking at increased competition in our service areas. We are trying to get our prices more in line with other carriers,” said Gary McBee, Pacific Bell’s executive vice president for external affairs.

The companies said the proposed rate shifts would not increase their revenues, just change which pockets they come from. Pacific Bell noted that the rate increases would be partly alleviated by changes last July, including free touch-tone service and enlarged local calling zones.

The companies said they need to lower their toll rates to compete with American Telephone & Telegraph, MCI and other firms that have begun to enter the local long-distance market for calls within California’s 10 telephone regions.

In order to reduce toll rates to competitive levels, Pacific Bell and GTE said they must raise rates for basic service, which they now operate at a loss. Pacific Bell said it costs the company $25 to provide basic telephone service for which it charges $8.35. The firm said its basic service rate is well below the national average of $12.40, and would still be in the mid-range of rates in American cities after the proposed changes.

Under Pacific Bell’s proposal, about 70% of its 8.7 million residential customers--those who make $11 or less in toll calls within the state--would see their phone bills rise an average $1.65 per month in the first year of increases, the company said.

But businesses and residential users who make many local long-distance calls would see savings of 20% to 30% on those toll calls, according to the company. Nearly one-third of residential users would see their total monthly bills drop an average of $4.19, according to the proposal. Out-of-state long-distance calls would not be affected.

GTE’s plan would increase flat-rate service charges from $11.85 to $15.55 in a onetime increase. Residential flat-rate customers would see an average increase of 82 cents a month in their total overall bills--including local long-distance calls--while business customers would see an average savings of $7.67 a month, the company said.

In Pacific Bell’s proposal, the monthly rate for residential telephone service with unlimited local calls would rise from $8.35 to $11.35 in the first year of the proposed rate hike. The rate would increase to $13.35 in the third year.

Business rates would rise from $8.35 for basic service with no free local calls to $10.90 in the final year of price hikes.

Installation fees would jump 63% to $56.70 for homes but remain at $70.75 for basic service for businesses.

Rates for long-distance calls within the phone-rate region from Ventura to San Clemente and east to Needles would drop substantially.

But consumer advocates said most people don’t make enough of those calls to see a savings. The 12% of residential customers who make no local long-distance calls would see their phone bills jump substantially, with no savings at all, these critics said.

Michael Shames, executive director of San Diego-based Utility Consumers’ Action Network, compared the proposed rate hikes to the $3.50 surcharge that federal regulators let companies such as Pacific Bell add to everyone’s phone bill to make up for revenues lost when their long-distance business was taken away by the 1984 breakup of AT&T.;

That surcharge did not hurt consumers who made a lot of long-distance calls because of increased rate competition among companies such as MCI and US Sprint, Shames said. But to many elderly and low-income people who made no long-distance calls, the across-the-board $3.50 hike was a burden, he said.

Proposed Phone Rate Restructuring

Pacific Bell and GTE want to shift more than $1 billion in phone charges from long distance to local service to compete with other firms entering California’s local long-distance market. Critics say residential users will bear the costs of reduced business charges, with 70% of residential users expected to see an increase in their total bill.

Local long-distance charges are expected to go down . . .

* Residence: Charges would drop 20%

* Business: Charges would drop 30%

* Credit card (calling card): Charges would drop 7%

. . . but basic charges would go up:

TYPE CHARGE PRESENT PROPOSED* Residential flat rate $8.35 $13.35 Residential installation $34.75 $56.70 Lifeline (for low-income customers) $4.18 $6.68 Lifeline installation $17.38 $28.35 Business service $8.35 $10.90 Business installation $70.75 $70.75

* Proposed rates are as of third and final year of incremental rate changes in Pacific Bell’s proposal. GTE made similar rate changes in a separate proposal.