The Maryland Public Service Commission agreed yesterday to consider deregulating local telephone service at the request of C&P telephone company.

The commission's plans could result in complete deregulation of telephone service, allowing C&P of Maryland to charge what it wants for local telephone service without regulatory oversight, said Shirley Bigley, a spokeswoman for the commission.

Several other states are looking at local telephone service deregulation or have introduced regulatory strategies in which some telephone company services that face heavy competition -- such as business private lines -- are deregulated in exchange for a cap or freeze on rates for monopoly residential and small business customers.

In a separate action, the Maryland PSC, the Maryland Office of the Peoples Counsel and C&P reached an agreement to reduce rates to customers by $30 million over the next two years to reflect federal tax law changes that lowered the corporate tax rate. Taxes are collected by utilities in the rates they charge customers.

Under the agreement, customers will see a reduction in their bills of $15 million a year, or 52 cents per line per month beginning Sept. 1. An identical reduction will go into effect July 1, 1989. In September, customers will also receive a one-time credit of between $1.04 and $1.56. Long distance rates for calls within the state will fall 5 cents per line per month this year and another 5 cents per line per month in 1989.

"At least we get rates at the proper level" before the idea of local telephone service deregulation is explored, said John Glynn, Maryland Peoples Counsel who represents ratepayers before the PSC. Glynn said C&P raised the idea of deregulating services such as Centrex private line services, coin phones and yellow pages because of intensifying competition for those services.

Putting a cap or freeze on local rates in exchange for deregulating certain C&P services might hurt rather than help residential customers, said Glynn.

"It's our view at the moment that the phone company wants to shift costs to the residentials because they are monopoly customers and have no place else to go and we want to avoid that from occuring," he said. On the other hand, "we are not insensitive to the idea that if there is competition they need a lot more flexibility."

Thomas Gibbons, president of the C&P Telephone Cos., said yesterday that a task force of Virginia regulators was also examining the idea of deregulating local telephone service, but that he was not sure whether the idea has been raised in the District

"The whole theory is we are in a new competitive business now and a lot of things regulated today are not regulated for competitors," he said. The telephone company would not advocate the complete deregulation of basic residential telephone service, which is still a monopoly, he said.

"Those that aren't {competitive}, like basic exchange service, would stay regulated," he said. Gibbons said the company would consider a residential rate freeze or moratorium. Residential and small business customers would also be protected from subsidizing competitive services through accounting rules that would divide up costs associated with equipment that is used to provide both basic services and competitive services, such as private line service, he said.

Caroline Chambers, a spokeswoman for the National Association of Regulatory Utility Commissioners, said yesterday that about 10 states have enacted "social contracts" that protect residential ratepayers by freezing or capping rates in exchange for deregulating other services. Some states, like Nebraska, have used legislation to completely deregulate local telephone service.

Capping local phone service rates in exchange for deregulation can benefit both consumers and phone companies, said Chambers. A C&P of Maryland spokesman said yesterday that the company would evaluate the freezing of residential rates in return for deregulation. A formal proposal will be submitted to the PSC on Sept. 3