In a landmark move, the General Services Administration and the Defense Department have asked 31 states and the District of Columbia to lower local phone rates, officials said yesterday.
The petitions, mailed June 6, ask the public service commissions of the District, Maryland, Virginia and 29 other jurisdictions to consider whether the local Bell operating companies' current profits "could warrant an overall decrease in the companies' revenue requirement and rate reductions for all classes of service."
"We're acting as a consumer, not as a policy maker, and everybody benefits from this," said GSA economist Mark Langsam. "Everyone who pays a phone bill in the United States will get lower phone rates from this if it's successful, and it will have a very beneficial effect on inflation."
The government argued that recent drops in interest rates make it cheaper for phone companies to borrow money, so their profits "may exceed what would be considered reasonable today."
Bell Atlantic Corp., whose biggest customer is the federal government, called the GSA assessment "sheer folly," saying the local Bell companies "face ever-increasing risks due to growing competition" and pointing out that "interest rates are constantly in a state of flux."
A spokeswoman for BellSouth Corp. said, "Our companies are not presently earning as well as they need to." Nynex Corp. said current profit margins at the companies are appropriate.
"We want the commissions in each state to investigate whether or not the Bell telephone rates should be reduced because current economic conditions are more favorable than when the rates were set," said Dellon Coker, chief of the Army's regulatory law office.
The GSA and the Defense Department often participate in local rate cases on behalf of all executive agencies, which spend $4 billion each year on local telephone service.
The federal government usually participates in rate cases when the phone company is seeking price increases, but does not often instigate efforts to role back rates. "Now, it's appropriate for us to ask for a rate decrease," Langsam said in an interview.
Pat Keough, chief of the GSA's economic analysis branch, said, "We've been watching the financial statements of the various companies and the performance of the industry in general."
The rate commissions have the responsibility to balance the rights of consumers and stockholders, he said. "It's a little out of balance now," Keough added.
Despite its wide regulatory authority over a broad spectrum of American life, the federal goverment has only limited authority over local rates. These rates generally are set by local public utility commissions. "We're hoping the commissioners order immediate reductions," Langsam said, noting that inquiries are under way in at least four states.
"I suspect what will happen is that there will be investigations in quite a few states," he said, predicting some state commissions will act in about 30 days.
The state rate-setting agencies usually allow the phone companies a return on their debt and equity of 12 percent or more. Langsam said he believes a rate between 10.25 percent and 10.5 percent would be more reasonable.
Langsam noted that 1985 was the third year of low inflation, which has helped the seven regional Bell companies and their 21 local operating companies by lowering their borrowing costs.
The federal government tried a similar tactic once before, when American Telephone & Telegraph Co. owned all of the Bell telephone companies.
"It took a long time, but we were ultimately successful," Langsam said.