American Telephone and Telegraph Co. Chairman Charles L. Brown says he thinks the Reagan administration is "embarrassed" by its handling of telecommunications policy issues.

In an interview, Brown suggested that although there generally appears to be a consistent administration policy in favor of revising the 1934 Communications Act along the lines of the Senate's recent passage of Republican-sponsored legislation, statements by William Baxter, chief of the Justice Department's Antitrust Division, have caused a deep split within the Reagan team.

"I imagine the Reagan administration is embarrassed at the pronouncements of Mr. Baxter," Brown said last week. "I really don't know why it's happening, but Mr. Baxter seems to be changing his mind and I'm not sure anybody knows where he stands. What seems clear is that he's split with the administration."

Baxter's views "seem to be in contrast with the rest of the administration, especially the Defense Department," Brown said. "It is incongruous that the Department of Justice is making pronouncements on national defense matters."

In addition to outlining AT&T's current views that the Washington situation is confusing, Brown addressed a wide range of subjects, including coming increases in telephone bills, the state of competition in the industry, the company's international plans and the Bell System's sense of responsibility in the new environment. Brown said:

It is "not out of the question" to foresee local telephone rates doubling in five to 10 years, but that as a result, long distance rates will fall. The company and many outsiders contend that long distance rates subsidize local service and as local rates increase, ATT&T will seek long distance cuts "as soon as the so-called subsidy is removed."

Although Rep. Timothy Wirth (D-Colo.), chairman of the House subcommittee preparing new telephone legislation, says much of the industry is only beginning to be competitive, the telephone equipment business is in the midst of "intense competition" and the long distance field is a "very serious competitive situation."

AT&T has launched a major effort by a new subsidiary, AT&T International, to garner a larger share of the international telephone business, particularly in the Middle East and the Far East, where the development of telephone systems have not matched overall economic development. "We don't expect it to be a huge company, but we do expect it to be a respectable force in the international market," Brown said, noting that he hopes it would be a thriving business in four or five years. "We didn't really try to export" until now, he said. AT&TI now employs 330 people.

When asked about the public and governmental perception of AT&T, he said company officials "try not to be arrogant in the sense that . . . we can do this or that. We understand that in the long run, something this big is only permitted to be this big and permitted to have this much permeating influence on commerce and defense only at the sufferance of the public. Some cynics might snort at that. But those are the facts.

"We're not asking for any favors," Brown said. "We understand that our responsibility is to the whole United States. I don't think the company is entitled to anything which any other company is not entitled to. We're not asking for anything other than a decent opportunity to compete."

Most of the session focused on AT&T's Washington situation, where Congress and the FCC on one hand are moving to free the company to enter new areas, while the Justice Department is seeking a major break-up of the company--a court-ordered divestiture.

That apparent policy divergence has led Brown to call the government a "three-ring circus." At no time has that confusing policy patchwork been more evident than today, he said. The passage of legislation "is the only sure way to find out what the will of the country is and what the country is to expect of this business."

Brown said that Commerce Secretary Malcolm Baldrige has been "very precise" in his support for the Senate legislation, which is designed to permit AT&T's entry into new markets and deregulate other facets of the business. And the Defense Department "has been vehement in its denunciation of the ideas" of the Justice Department.

The controversy Brown alluded to is the debate between the Commerce and Defense departments on one end and the Justice Department on the other. The argument focuses on the rewriting of the nation's telecommunications laws and AT&T's role in the restructured environment that would follow.

Under pressure from Commerce and Defense, who argued that no telecommunications legislation could pass Congress as long as the Justice Department's ongoing antitrust suit against AT&T was continued, Baxter said he would dismiss the seven-year-old antitrust case when legislation that moved to solve the problems of competition raised in the suit goes to the president. In the 96th Congress, fears from the House Judiciary Committee about the fate of the case stymied efforts to pass similar legislation last year.

Baxter and other Justice Department officials worked with Sen. Strom Thurmond (R-S.C.) to develop amendments addressing his concerns, and most of that package was adopted by the legislation's sponsors on the Senate floor.

But the day after the Senate passed the telecommunication act last month, Baxter announced that the bill did not meet his goals, a move that apparently startled administration officials and Senate leaders. Baxter said the bill would "result in endless hassles" at the FCC and leave the regulatory agency with too much discretion. Baxter had earlier opposed the bill for similar reasons.

The Defense Department has vehemently argued that breaking up AT&T would jeopardize national defense systems, and the Justice Department has challenged those contentions. Baxter has said there is no inconsistency between his goals of insuring competition in the industry and maintaining quality defense communications systems.

Brown's comments come at a time of continuing uncertainty and, in a sense, confusion about the company's future structure. The Senate-passed legislation was encouraging to the company, Brown said, although he says on several fronts the bill is, for AT&T's purposes, imperfect.

The company opposes part of the measure that would force AT&T to buy products from outside sources, another that splits the dates when existing and new telephone equipment is deregulated, and another barring the company from offering advertising, mass media and burglar alarm services.

But Brown says AT&Tremains steadfast in its view that a legislative solution to the problems in the telecommunications industry is far better than the FCC's restructuring efforts in its landmark Computer Inquiry II decision. That decision, issued last year, would also permit AT&T to enter new unregulated businesses through a separate subsidiary early in 1983. The Senate bill has more restrictions, however. "Things like that can be cured in House legislation and settled in conference," he said.