Our reason for going before the Public Service Commission asking to increase rates is simple: We need this revd we need it now.

We have controlled costs by reducing our work force; increasing productivity and efficiency by implementing new technology; consolidating our work operations; and reducing energy consumption. We have sought new sources of business revenue, such as Audiotex services, local area data transport systems, CATV, and enhancements to our Custom Calling and Centrex services. While these efforts will be beneficial, our ability to improve earnings is limited by court and FCC decisions that restrict us from entering certain types of business.

But our best efforts in cost reduction and revenue gation can't do the job alone. We also need adequate rate relief. Our past rate awards have simply been inadequate to earn at the PSC's authorized rate of return.

In the past, we were able to subsidize local rates -- keeping them below cost -- by pricing certain services, such as long distance and telephone equipment, above cost. With the impact of divestiture and competition we are no longer able to continue this philosophy.

This is consistent with the policy in the telephone industry: letting the cost- causer pay. This means charging customers the actual cost of connecting new services, rather than having them absorbed by all ratepayers.

Our critics contend that increased telephone rates will force large numbers of low-income customers to leave our network. We do not think that this is the case. This is not our strategy, since the loss of any significant number of customers from the network, in effect, lessens the value of the network itself. We remain committed to universal service -- guaranteeing the availability of telephone service to those who want it at affordable prices. Our proposed rates do not jeopardize that commitment. If approved, they will still be a bargain, with a variety of available service plans. In addition, C&P supports a discounted service for low-income customers that has been proposed at $4 a month.

As a business we have a responsibility to be profitable, which enables us to pay a reasonable return to investors; expand, maintain and improve the quality of service; and invest in new technology that will make the local system more efficient and economical. To accomplish this, however, we need to improve our earnings.

C&P's financial performance ranks among the lowest of all the former Bell Operating Companies. The seriousness of our financial condition was recently underscored when Duff and Phelps, one of the nation's largest financial analysis firms, downgraded C&P's credit rating. Factors cited included the PSC's insufficient rate awards and unresponsive regulatory practices.

If we lose the financial community's support, we will be unable to achieve outside financing at favorable rates. If that occurs, we must either cut back on technological improvements or consider other alternatives, such as new rate increases or layoffs. When we raise the rates of our business and government customers above their cost, we encourage them to investigate alternatives to local service. Our competitors offer these users ways to bypass C&P and are offering products that can compete with services previously offered only through the local telephone network. If these larger customers leave the network, the remaining customers will be forced to support a larger share of our fixed expenses.