Bell Atlantic Corp. is no longer just a local telephone company.
Since the breakup of the Bell System one year ago, the company that owns the C&P Telephone companies in the District of Columbia, Maryland and Virginia, as well as phone companies in West Virginia, Pennsylvania, Delaware and New Jersey, has emerged as a "communications company," Bell Atlantic officials say.
"The telephone man is a communications man, not a telephone man," said Philip Campbell, president of Bell Atlantic Management Services Inc., which offers management support for the local phone companies. "He rearranges your telephone system, he does not install your phone."
In the literal sense, Bell Atlantic service representatives no longer routinely install residential phones.
But more fundamentally, the company's primary emphasis appears to have shifted from providing low-cost universal service to residential customers to taking special care of its big business clients and the intensely competitive long-distance companies that have become a vital new class of customer.
"Jan. 1 last year, we were a local exchange company," said Jack Baird, a spokesman for Bell Atlantic Corp. "We are moving aggressively to change that fact." The company is interested in "more fully meeting" customer needs, providing real growth in earnings and giving employes opportunities for growth, he said.
"We simply cannot do those things within the confines of the regulated local exchange business," Baird said. "Home telephone service is not competitive -- it is simply not pulling its weight in the boat, and you don't see competitors trying to get into those markets."
According to company officials, Bell Atlantic loses $1.7 billion a year on local telephone service.
"Our most profitable revenue is in the hands of a few customers," said William M. Newport, executive vice president for marketing and operations for Bell Atlantic Management Services Inc.
Newport said the company must satisfy not only residential customers but also business customers who want specialized new communications services. Long-distance companies such as American Telephone & Telegraph Co., MCI Communications Corp. and GTE/Sprint also are closely watching how much they pay Bell Atlantic and other regional companies.
"If we did not organize to find out what the requirements for those customers are, we wouldn't have a very profitable business," Newport said.
The Pandora's Box of divestiture has "released" competition and is exerting new financial pressures in the once-monopolistic telephone industry, phone company officials say. New communications technology is making it possible for prime business customers to leave the Bell Atlantic network and arrange their own means of voice and data transmission. These defections, known as "bypass," threaten to leave the residential telephone customer with a larger share of the overall telephone bill.
Because Bell Atlantic now stands on its own feet, it must raise its own capital. Profits are a major source of concern. The company is diversifying into new nontelephone lines of business to improve its financial picture. Although recent acquisitions have not begun to make money, the company has high hopes for its new ventures in the computer business and in office equipment servicing and leasing.
For the 27.7 million people the telephone company serves, the shift to competition has meant higher local rates. Divestiture has opened the way for a repricing of local services and an end to subsidies traditionally paid by businesses to reduce the charges for residential phone use, telephone industry officials say.
"Business services have subsidized local service, and there has been an uneconomic cost on business services you could sustain in a monopoly environment [that] you can't sustain in a competitive environment," said Thomas Gibbons, president of the C&P Telephone Cos. As a result, local telephone rates are going up while long-distance rates are expected to come down an average of 5 percent in 1985.
Simply put, C&P and other phone companies are taking the path of least resistance. They are asking for higher rates on residential users, who have no alternative to the local phone network, and are trying to shave rates they charge business customers to keep from losing them, critics charge. "The phone company wants to charge as little as possible for the competitive service and as much as possible for the monopoly local service," said Gene Kimmelman, legislative director of the Consumer Federation of America.
Since Jan. 1, 1984, local telephone companies have asked for $10.9 billion in rate increases and received $5.1 billion in increases from state regulatory commissions, according to the federation. Residential rates have risen by more than $2 billion.
The average cost of flat-rate telephone service has gone up 19 percent, from $11.80 a month to $14.09, and the average cost of turning on service for a new customer has increased 26 percent, from $42.35 to $53.45, the federation reported in a survey of 27 states covering 75 percent of the U.S. population.
Bell Atlantic currently has $550 million worth of pending rate increases. It received $431 million worth of increases in the year before the breakup of the Bell System, a company spokeswoman said.
Residential and business rates in the District will rise 153 percent and 12.4 percent, respectively, and in Maryland by 25 percent and 28 percent if pending rate requests are granted. If approved, residential rates in the District will be three times higher than they were in 1983, and Maryland rates will double.
The proposed increase in District residential rates is an example of what happens when business subsidies are eliminated and residential and business customers are required to pay something closer to the "true cost" of their phone service, phone company officials say. In Maryland, they note, phone charges essentially have been repriced to reflect costs. A request for a rate increase in Virginia to accomplish the same thing is expected after the first of the year.
Rates will continue to rise until services are no longer subsidized, but officials cannot pinpoint just when that will be.
But the trend of rising phone rates, consumer groups warn, endangers the longtime national commitment to low-cost, universally available phone service, even for the poorest households.
According to the consumer federation, residential rate increases will force 750,000 households, or more than 2 million people, to go without a phone by mid-1985. The federation has no precise studies of how many people dropped off the network before the Bell System breakup, but says the number of people who can't afford phone service has grown -- even during the economic recovery of the past two years.
Bell Atlantic officials say universal telephone service for all Americans remains a top priority, but contend that a federally mandated tax rather than a ratepayer subsidy may be the best way to ensure it.
Meanwhile, shareholders are benefiting from an excellent performance by the stock of Bell Atlantic and the other regional companies split away from AT&T a year ago. Analysts and investors alike have been pleasantly surprised by the regional companies' success in reducing payrolls and overhead, and by their aggressive search for new business ventures and services.
To cut costs, Bell Atlantic has reduced its 80,000-employe work force by 2,000 this year and plans reductions of 10,000 by 1990.
Bell Atlantic is upgrading the telephone network by installing new digital telephone switches for high-speed voice and data transmission, and is offering to build private telephone networks for its largest customers. Residential customers, meanwhile, are being offered new features such as call forwarding and incoming call screening.
According to Bell Atlantic officials, these new ventures will mean expanded profits and, ultimately, a better break for ratepayers.
The ability of Bell Atlantic and the other regional companies to branch out into new businesses and services, however, has been restrained by the rulings of U.S. District Judge Harold H. Greene, who approved the breakup and presides over its aftermath. Judge Greene has forbidden the regionals from manufacturing equipment or offering long-distance service. And he insists that any new ventures receive advance approval from his court and the Justice Department.
Restraints or not, the companies haven't been timid. Just recently, Judge Greene approved 13 waiver requests by six of the seven regional companies allowing them to become involved in real estate, foreign consulting, computer sales, data processing and other businesses. Other requests are pending.
The companies' guaranteed revenue from regulated local telephone service, combined with their new entrepreneurial outlook, are making the new ventures good investments.
"Their [stock] performance since divestiture has been excellent. They've outperformed the market dramatically," said Edward M. Greenberg, a telecommunications analyst with Sanford C. Bernstein & Co.
Initially, investors were skeptical about "the boring monopoly business" regional companies were left with, said John S. Bain, an analyst with Shearson Lehman/American Express.
Stocks initially were undervalued, but the companies' new image has jolted investors. "The regionals were standing up and fighting for stuff, applying for waivers, cutting costs, having good earnings, and people were saying, 'Hey, you're pretty good,' " said Bain.
Stocks have performed so well that there has been an average 24 percent increase in total return, said Bradford L. Peery, an analyst with the San Francisco investment banking firm Hicks Peery Inc. Bell Atlantic stock was first issued at $65.75, and now hovers around $79.25, up 20.5 percent, Greenberg noted.
But the stocks could begin to slightly underperform as a group over the next 12 months because of the effect of new tax proposals on the companies, lower revenue from charges customers pay the companies to support the telephone network, and diversification efforts that may go awry, Bain said.
Nevertheless, Bell Atlantic is ranked among the top two of the seven regional telephone companies by Prudential-Bache Securities Inc.
"It's a very strong, centralized management, relatively level regulatory climate, an attractive operating territory with high population concentration, plus low costs that will enable Bell Atlantic to offer new services," said Prudential-Bache analyst Marianne G. Bye.
Bell Atlantic's financial forecast is slightly ahead of projections for 1984, with revenue of $6 billion and net income of $731.6 million for the first nine months of this year, spokesman Baird said.
"We are slightly ahead because of plain old good management," said Thomas E. Bolger, chairman and chief executive officer of Bell Atlantic. But the situation can't last forever, and the company will "have to take more drastic action, file a general rate increase and start all over again at the FCC [Federal Communications Commission] level," Bolger said.
He faults the FCC for giving too much of the overall phone customers' dollar to the long-distance industry, at the regional companies' expense. "We believe that's unfair and unreasonable and . . . puts pressure on us to raise rates even further," he said. Bell Atlantic also would like higher rates to allow it to earn its authorized rate of 12.75 percent, instead of the 11 percent it receives.
Meanwhile, the company is aggressively managing its new business ventures. Bell Atlantic has acquired Sorbus Service, a nationwide computer maintenance firm and subsidiary of Management Assistance Inc., for $175 million. Bolger plans to use "a few twists of the screwdriver" to turn the company into a nationwide [telecommunications] equipment-servicing company.
Bell Atlantic also has acquired Tri-Continental Leasing Corp., a nationwide office equipment financing firm, for $11.8 million; launched Bell Atlanticom Systems Inc., which sells telecommunications equipment; and purchased Telecommunications Specialists Inc., a Houston-based telecommunications and office equipment business, for an undisclosed sum. In addition, the company has a 40 percent interest in A Beeper Co. Associates, a nationwide paging firm, and owns Bell Atlantic Mobile Systems, a cellular phone service provider.
"Next year, I'm sure we will be filing for one or two waivers," Bolger said.
Although Bolger is tight-lipped about overall business strategy, a source close to the company says Bell Atlantic, unlike the other regional companies, prefers to buy businesses rather than start them up.
"When US West wanted to get into the [telecommunications equipment] business, they used their own people. The negative is it is a completely different business," said the source, who asked not to be identified. "The best management are people who have been in the business for years, and Bell Atlantic has taken a rather unique approach [in purchasing businesses]."
On a local level, Chesapeake & Potomac Telephone Cos. will be building the long-awaited cable TV facilities for District Cablevision Inc., and Bell Atlantic is making bids for a similar system in Baltimore and approaching other cities that do not have cable TV service, company officials say.
But Bell Atlantic still has a few regulatory thorns to pluck from its paws, said Newport of Bell Atlantic Management Services Inc.
The company wants to save money by offering "enhanced" services, such as voice mail and computer networking, through its central offices rather than through a subsidiary as required by the FCC. "The whole issue of what is enhanced and what is basic service needs revisiting," Newport said.
Bell Atlantic also wants out of an FCC-mandated revenue "pooling" arrangement whereby low-cost companies subsidize high-cost telephone companies in other areas. The company is paying $40 million a month for the pooling arrangement, Newport noted.
The new year may yet ring in a new regulatory relationship between the FCC, state public service commissions, the Justice Department and the seven regional telephone companies as divestiture restrictions grow old and competition intensifies.