A ruling this month by U.S. District Court Judge Harold H. Greene on the breakup of the American Telephone & Telegraph Co. would permit the local operating companies that are split from AT&T to use the "Bell" name. AT&T, the parent company, would be forbidden from using the name of the company's founder. This part of Greene's ruling was reported incorrectly July 9.

A federal judge yesterday ordered major changes in the Bell System breakup plan designed to head off potentially massive local telephone rate increases after the company is split apart next year.

Stressing his increasing concerns about rate-hike proposals, U.S. District Judge Harold Greene said the government and the phone company must endorse his conditions before the divestiture can take place.

Greene said he was proposing the changes in large part to improve the financial condition of the local phone companies that AT&T is scheduled to lose on Jan. 1 under its landmark agreement w ith the Jusice Department.

Moreoever, Greene condemned a plan tentatively approved by the Federal Communications Commission that would add as much as $4 a month to local phone bills within the next few years. The program is designed to compensate local telephone companies for the costs of tying into long-distance phone systems.

Greene admitted he had no jurisdiction over that proposal, but he insisted he could consider its impact in ensuring that the Bell System's breakup will not directly lead to higher rates. The proposals "should assist in moderating the pressure for local rate increases whatever their source," Greene wrote.

Most dramatically, Greene--endorsing concerns raised by Tandy Corp. and a variety of other telecommunications equipment companies--barred AT&T after divestiture from using in any form the word "Bell" in either corporate names or in marketing or manufacturing. Bell Laboratories will retain its name, however. But the local phone companies will not be able to use the name of the telphone's inventor in any form.

That piece of the decision will be particularly costly in light of the millions of dollars AT&T has spent setting up its much ballyhooed six-month-old susidiary, American Bell Inc. One AT&T official estimated that the new firm, which is selling a variety of telephone and computer equipment, has spent at least $30 million marketing that name.

The decision is the latest step in implementing the 1 1/2-year-old consent agreement between the Justice Department and AT&T. Under the plan, which settled an 8-year-old antitrust suit, AT&T agreed to give up its 22 local phone companies, retaining its manufacturing, research, and long-distance arms.

But communications experts have begun questioning whether AT&T, in light of growing political concern about phone rate increases and its own internal difficulties, will be in a position to meet the Jan. 1 breakup deadline.

Although Greene's decision yesterday on the specifics of the reorganization plan removes some questions about that deadline, any effort to appeal this decision to the U.S. Court of Appeals, or perhaps directly to the U.S. Supreme Court, could jeopardize that deadline.

Reaction from AT&T and the Justice Department was tentative. Top AT&T attorney Howard Trienens said the company was "most aggrieved" about the court's order on the Bell name, but said he was happy that Greene had rejected close to 500 other issues competitors and regulators had raised about AT&T reorganization.

"We don't expect to make a decision today on the court's modification, nor are we going to speculate on what that decision will be," said an AT&T spokesman, William Mullane.

James Denvir, chief of the Justice Department's AT&T staff, said that, although the government attorneys still are reviewing Greene's opinion, they were "pleased that the court, with very few exceptions, has approved the plan of reorganization."

Greene's decision won general endorsement among consumer activists and on Capitol Hill, where Rep. Timothy Wirth (D-Colo.), chairman of the House telecommunications subcommittee, like his Senate counterpart, Commerce Committee Chairman Bob Packwood, is considering proposals to ameliorate the impact of phone rate hikes.

Tandy Chairman John Roach, who led the fight to block AT&T's use of the Bell name, said his company is "very pleased" with the decision. "The competitive atmosphere would have been impaired and there would have been confusion in the customer's mind" without it, Roach said.

AT&T and the government had proposed that local companies be barred from using the name in connection with selling equipment and that AT&T be free to use "American Bell."

But Tandy, which operates Radio Shack, a leading seller of telephones and other electronic equipment, and other firms in that business were concerned that the name would imply a continuing link between the local phone companies and the remaining AT&T. Greene agreed.

The implication of a continuing relationship between AT&T and the local phone companies is "inconsistent with the bedrock principles underlying the decree," Greene wrote. "The long-standing consumer association of the "Bell" name with all aspects of the Bell System's local, long-distance and equipment operations would not only persist; it would actually be reinforced."

Greene, in another move to strengthen the local companies, said that AT&T must do more to insure that the local phone companies are reimbursed for changes in their networks that the divestiture agreement requires.

In addition, Greene ordered AT&T to grant the local companies access to its existing patents and the right to license them to other telecommunications concerns. That provision was endorsed by competitors, who need access to Bell technology in order to maintain the ability to hook into the telephone network.