Business telephone rates will go up and residential customers will pay higher installation fees and separate charges for the use of phone lines and telephones under an application for rate changes filed in the District of Columbia by C&P Telephone.

Basic monthly phone charges will drop by 67 cents a month and District residents will get 20 free calls to the suburbs each month if the new rate structure is approved.

C&P press representative Web Chamberlin said the changes are meant to make phone charges directly reflect the cost of providing service. The Federal Communications Commission ruled recently that phone companies cannot require some types of customers to subsidize others by paying more for services than it costs.

The changes proposed by C&P would increase the company earnings by 3.5 percent a year and bring in $6.9 million in additional revenues.

The new system sets a basic rate of $4.18 a month for telephone service. At that price, the customer must buy his or her own telephone.

For an additional 80 cents a month the phone company will provide a basic dial phone. The $4.98 monthly total is 67 cents a month less than the present minimum charge of $5.65.

Substituting a princess phone for the basic black model costs $1.80 a month now and would cost $1.65 a month under the new rate system, Chamberlin said.

Installation charges will go up under the plan, which requires the approval of the D.C. Public Service Commission. The basic residential hook up fee would increase from $2.80 to $3.15, the cost of installing jacks would be raised from $2 to $5.30 and the cost of installing wiring would go from $5.75 to $9.35.