Local telephone rates are ballooning upward around the nation, and nowhere faster than in California, where Pacific Bell has just asked regulators for a $517.5 million increase.
The bulk of that increase, if approved, would be translated into a surcharge of more than 10 percent on most local phone rates here.
For Pacific Bell's residential customers, who have seen the basic charge for unlimited calling jump from $7 a month to $8.25 since January 1983, the end is not in sight. The latest request is part of $1.36 billion in new revenue that Pacific Bell is seeking from the California Utilities Commission. What it would do to rates is not yet known.
The billion-dollar request is causing anxiety and frustration at the Federal Communications Commission. At the top of the FCC's agenda next year is the issue of new telephone access charges for residential users, which the commission sees as a critically needed source of revenue for local phone companies. But high-ranking FCC officials worry that the $1.36 billion request will help reignite the political opposition in Congress that stopped the FCC in its tracks on the issue early this year.
"They're asking, 'Why in the world did you file a rate request now?' " said Arthur C. Latno Jr., executive vice president of Pacific Telesis Group, the holding company created by the breakup of American Telephone & Telephone Co. to oversee the former local Bell companies in California and Nevada.
"We couldn't afford to wait," he said.
Latno said the company believed it needed to move now to assure the higher revenue it says it needs, or wait two more years for the next cycle of rate requests at the PUC to begin.
If the timing is understandable, the size of the request is harder to justify. That is the political and public relations problem faced by telephone companies everywhere, including the Chesapeake & Potomac companies.
C&P says its current requests before local regulators have little to do with the breakup of AT&T. But Latno, with a great deal more candor, demonstrates how the surge of rate increases moving through the system is tied to the dramatic changes in the structure and personality of the former Bell companies that has accompanied the breakup.
According to Pacific Bell, these are the major pieces of the $1.36 billion request: $260 million to cover costs of equipment and lines to handle 430,000 new customers over the next two years. $525 million for depreciation of buildings, switches, transmission lines, vehicles and other equipment.
One could argue that these additional charges for depreciation -- a big factor in rising phone rates nationwide -- were not caused by the AT&T breakup. Latno noted that for years, while telephone technology was changing gradually, it was in AT&T's interest to depreciate equipment and facilities slowly. The more slowly that equipment was depreciated, the longer it remained listed as an asset on AT&T's balance sheet and part of the base on which its rates were set.
But changes in tax laws and the swift evolution of telecommunications technology have led to much faster depreciation policies in the telephone industry. Now, the more quickly a company depreciates equipment, the greater the tax deduction.
Before the breakup Jan. 1, Pacific Bell was a plodding telephone utility. Now it is a hybrid combination of phone utility and high-tech company, with a raft of new competitors, unprecedented new opportunities -- and, not the least, a fraternity of investors and stock analysts to impress.
The significance of this new identify jumps out from another part of the $1.36 billion request: $291 million sought to raise Pacific Bell's rate of return on stockholders' equity to 17.5 percent.
Pacific Bell currently earns a 13 percent return on equity, fine for a utility, says Latno, but not enough to qualify as a high-tech telecommunications power. "Our investment experts say we need that [the higher rates]... if you take into account the business risks we'll face" and the new competitive environment, Latno said.
The final major piece of the $1.36 billion is a $252 million request to cover an anticipated deficit in the growth of revenue compared with the growth of expenses. A fast-growing part of Pacific Bell's expenses is an updating of equipment, much of which currently serves its larger business customers rather than residential users.
Like other phone companies, Pacific Bell hopes to move customers from flat rates to a measured rate that includes a smaller monthly charge and additional charges per call.
Since January 1983, the flat rate has gone from $7 a month to $8.25. Measured service has gone from a minimum of $3.75 to $4.45, and the per-call charges and lifeline service has dropped from $2.50 to $1.48.
Pacific Bell calculates that some 60 percent of its customers would save money by switching to measured service, based on current phone use, with an average savings of 46 percent.
But only 9 percent of Pacific Bell customers use measured service, even though California has had this option longer than nearly any other state.
And the rate requests generated by phone companies now won't do much to ease customers' fears about switching to measured service.