If the Chesapeake & Potomac Telephone Co. gets the rate increases it is asking for, home telephone bills in the District of Columbia next year will be three times higher than they were in 1983, and Maryland residential bills will double.
The nearly $200 million in rate hikes the phone company has asked for in recent weeks come only months after a round of rate increases totaling $210.3 million for District and Maryland phone customers. See related story, page 33.
Virginia C&P customers so far have escaped the rapid rise in rates, but they are certain to face the same new strategy in telephone service pricing that C&P is implementing in the District and Maryland.
The company is introducing a new concept of charging customers a monthly fee just for hooking up to the phone lines, called a "dial-tone charge." Customers will be charged separately for using the phone, either on a call-by-call basis or a flat rate for unlimited local calling.
That plan went into effect last December in Maryland, is being proposed now in the District, and there's "a good possibility" it will be sought in the next Virginia rate increase, a C&P spokesman said.
If the new plan goes into effect, District customers who order the most popular plan, permitting unlimited local calls, will pay $28.82 a month (including the separate monthly dial-tone charge) instead of the $12.49 they now pay and the $8.83 they paid for that service last year.
The company also is raising the amount charged per call and increasing charges for installation, maintenance, operator and other services as well as coin-phone rates. The soaring residential phone rates are all the result of the breakup of the Bell System, the telephone company says.
The message, according to C&P vice presidents Hank Butta and Delano E. Lewis, is that local rates must go up because the local telephone company has lost long-distance revenue that the company says was used to subsidize local rates prior to the breakup of the Bell System.
The company says it also needs more money to meet the threat of competition from firms offering business customers a cheaper way to make long-distance calls by bypassing the local phone company.
"We need this money to run our business, we can't afford to price our services below cost," said Mike Houghton, a spokesman for C&P Telephone Co.
The company no longer has revenue from telephone equipment it sold before divestiture, and inflation, together with increased wages, have caught up with it, spokesmen say.
In the competitive new post-Bell-breakup world, C&P is investigating new opportunities in high-speed data and voice services, primarily for business customers, said company spokesman Web Chamberlain. In the District, C&P also is "seeking new sources of revenue, like construction of a cable television transport system and audio text services," he said.
If the rate increase is granted, the bulk of the revenue the telephone company earns from local telephone service will be generated from residential telephone customers in Maryland and the District. Fears are surfacing among consumer groups and others that residential users will pay for the telephone company's competitive business ventures.
"We've always taken the position," said District People's Counsel Frederick Dorsey, "that what the residential customers ought to be responsible for is simply what it costs to give the kind of service the residential customer is asking for -- plain old telephone service."
Dorsey said his message to the phone company is that "you cannot use your monopoly position in providing local telephone service to subsidize your competitive effort. That is the bottom line."
The allocation of costs between residential and business customers, the financial health of the phone company and the question of whether local phone service was subsidized by long-distance calls are key issues in the phone-rate debate.
Some critics question whether local rates ever were subsidized by long-distance revenue; one of them is Jeffrey Blumenfeld, who as a lawyer in the antitrust division of the Justice Department handled the Bell breakup case in the court of U.S. District Judge Harold Greene.
"As to the famous long distance-to-local subsidy, Judge Harold Greene said that while AT&T had repeatedly claimed there was such a subsidy, there was no evidence on the record that there was such a subsidy," said Blumenfeld, who is now in private practice. "In fact, there was evidence that such a subsidy flowed the other direction," he said.
Although C&P no longer handles long-distance calls that go outside its local service area, it still is getting revenue from long-distance companies in the form of access charges that long-distance firms pay the local company for hooking into the network to handle long-distance calls.
In the District, for example, the company's rate request says it is receiving $137 million in access fees. The bulk is paid by long-distance companies, but $9 million is paid by business customers.
"The local telephone companies are trying to double-dip by pretending the money they get from the long-distance carriers does not exist," said Gene Kimmelman, legislative director for the Consumer Federation of America. "They are asking the local public service commissions to charge residential customers for the very same costs paid for through their long-distance access rates," he said.
"In going from monopoly to competition, the phone companies have seemed to lose sight of the fact that they are there to provide a reasonably priced service and not just maximize their profits. No one is looking at the whole picture," he said.
Last week, the Maryland People's Counsel asked the state Public Service Commission to reject C&P of Maryland's rate hike request on the grounds that it is too much too soon. The District People's Counsel is contemplating the same action. "We've done it before, and we may well do it again," said Dorsey.
"There is no evidence that C&P of Maryland is experiencing any financial difficulties, so there is no need for the commission to rush forward," said Gregory Carmean, assistant Maryland People's Counsel. "The company wasn't able to present any objective evidence in the last proceeding, and there is no evidence in this proceeding either that the company is facing significant losses" of revenue because business customers are switching to other communications services, he said.
Although the phone company says it needs more money to install new equipment to handle computer transmissions and other sophisticated services, Maryland officials disagree. C&P has "no need to upgrade their network. The C&P Telephone companies have the most advanced equipment in service of any of the operating companies around the country," said James DeGraffenreidt, also an assistant Maryland People's Counsel.
C&P has not presented conclusive studies on lost revenue from competition because "there are none," said C&P spokesman Chamberlin. He said big customers who have taken their business elsewhere include the state of Maryland, Westinghouse Electric Corp., Johns Hopkins Hospitals, the U.S. Congress and the Washington Metropolitan Area Transit Authority.
Chamberlin insists that upgrading the network will benefit the residential user. "In the age we're in, the public is getting more and more accustomed to having those technologies available to them," he said.
Computerization of the network will make it easier for customers to do their banking and shopping over personal computers hooked into the local network's lines. Initially, however, Chamberlin said the technology would be "primarily for the business customers" in the form of high-speed data and voice and other computerized services.
Maryland People's Counsel officials said they don't know if the plans for construction will benefit the residential customer.
"The Chesapeake and Potomac Telephone Co.'s request for yet another rate increase . . . should be immediately rejected by the Public Service Commission," said Rich Bruning, chairman of the Greater Washington Americans for Democratic Action. "The telephone company obviously is obtaining needed cash for its cable TV service from District consumers rather than from stock sales and borrowings," he said.
"Our involvement in cable television will not impact the D.C. telephone ratepayer," said C&P spokesman Houghton. "D.C. telephone customers will not bear any of the expenses that are incurred in building and maintaining the cable transport system. In the long run, it could have a positive effect on telephone rates," Houghton said.
How much residential users are contributing to services they do not directly benefit from must still be proven, said D.C. People's Counsel Dorsey. So must the issue of whether residential services charges reflect the cost of providing that service.
"There has been very little capital investment related to plain old telephone service," said Dorsey. Residential customers may not be paying for upgrading the system, he said, but "why should they, since most of the technological developments have gone to services not related to plain old telephone service?"
Phone company officials adamantly disagree. "We think we've proven the case, we've got cost studies and they get scrutinized by the Public Service Commission and People's Counsel," said C&P's Houghton. "We feel confident on the cost studies and feel we have proven what it costs."
Maryland's Assistant People's Counsel DeGraffenreidt responds that in the last four rate cases, "we have shown residential rates do cover their costs, and that other services do not cover their fair share.
"They are allocating local exchange services to the residential customer when the system offers other services the local user doesn't subscribe to," he said.
Plans to charge separately for the dial tone have been rejected by the District Public Service Commission in two previous rate cases. "The commission has consistently refused to accept the degree to which the phone company has requested them to burden the phone customer," Dorsey said.
The Maryland People's Counsel also opposed the strategy on the basis that "the company produced not one single cost study that justified it," DeGraffenreidt said.
Maryland officials contend the telephone company's long-term strategy is "designed to force customers off of unlimited service" onto "local measured service." They contend the phone company's plan is to charge customers on a per-call basis based on distance and duration of conversation in addition to a separate charge for the dial tone.
"Their studies showed local measured service was an ideal measure for obtaining additional revenues from residential customers," said DeGraffenreidt. "The strategy would be implemented by first offering it as an option and then increasing the spread between unlimited flat-rate service and local measured service," he said.
C&P insists the introduction of local measured service is just an option and that the majority of customers will remain on unlimited flat-rate service.
Phone company officials note that callers in some areas -- such as New York City -- have paid on a per-call basis for years. They say that charges based on the time and distance of each call will assure that customers' bills reflect the value of the service they are getting. The concept is no different, they contend, than bus or taxi riders paying more for long trips or bills for electricity and natural gas going up when the customer uses more.