Pacific Telesis Says ’95 Income Will Decline About 10%

Blaming declining market share and lower rates for toll calls since the advent of competition, Pacific Telesis Group said Monday that it expects 1995 earnings to drop about 10%.

“We’re taking every prudent step possible to minimize the earnings decline,” said Philip J. Quigley, chairman and chief executive of the company, whose chief holding is Pacific Bell. “But the combination of new competition and outmoded regulation makes that very difficult.”

For 1994, Pacific Telesis, which also owns Nevada Bell, reported net income of $1.14 billion. For 1995’s first quarter, the company reported earnings of $282 million. Revenue in that period was $40 million less than in the same quarter of 1994, a trend the company said is likely to continue through the year.

Quigley attributed most of the reduction in Pacific Bell’s revenue to a decision by state regulators to open to competition the market for local toll calls as of Jan. 1. Such calls travel more than 12 miles but stay within a local calling area.

When the market opened, Pacific Bell, with approval from the California Public Utilities Commission, cut rates on those calls by about 40% but raised the cost of basic residential service in an effort to make up the difference.

However, the company said it has lost about 5% of its market share for such calls and that “the expected calling volume increases have failed to materialize anywhere near the PUC’s expectations.”

Another factor in the decline, the company said, was a requirement by the PUC that it reduce revenue by $232 million this year to reflect improvements in productivity. That mandated reduction grows out of a long-running rate-setting formula designed to simulate competition.

Quigley said this so-called productivity factor reflects “an outdated approach” to regulation. On May 24, the PUC is expected to reopen its investigation of the productivity factor.

Pacific Telesis said it intends to maintain its annual dividend of $2.18 a share. Company shares closed down 12.5 cents at $29.625 on Monday on the New York Stock Exchange.