By David Bank

Mercury News Staff Writer

Your local telephone bill has become a battlefield.

On Monday, Pacific Bell proposed a plan to sell access to its local telephone network to competitors but set prices for that access so high that customers who switch to competitors would face large increases in their monthly bill.

At the same time, Pacific Bell promised to freeze its own basic monthly charges -- now set at $11.25 for most residential customers -- for the next three years.

The proposals, made in a filing to the California Public Utilities Commission, are an early bid in what is likely to be a monthlong campaign by Pacific Bell and its would-be competitors to influence the ground rules for competition in the state's $6 billion local telephone market.

The ground rules will determine whether the local telephone monopolies can be dismantled without major disruptions and rate hikes for consumers.

``We want customers to have the opportunity to choose their telecommunications providers just as they should be able to choose their cable TV and long-distance providers,'' said Lee Bauman, Pacific Bell's vice president for local competition. ``We're willing to take the chance of losing customers in return for the opportunity to attract new ones.''

Last Friday, three months of secret negotiations failed to produce an agreement between current holders of local monopolies, such as Pacific Bell and GTE, and potential new entrants into the market, such as long-distance and cable companies. Pacific Bell's latest proposal shows that the parties remain far apart.

The fundamental conflict is over the real cost of providing basic monthly telephone service. Pacific Bell officials say that cost is $24 a month, more than double the current monthly charge. They say the company subsidizes local service from its other offerings. Competitors and consumer groups, using different accounting methods, dispute Pacific Bell's figures and say the current charges approximately cover true costs.

The conflicting cost estimates lead to disagreements about how to price the separate parts of Pacific Bell's networks, which competitors will need to rent until they can build their own facilities.

For example, Pacific Bell proposed to charge competitors $10 a month for the link from a customer's home to one of the company's central offices. In addition, it would charge competitive providers $3 a month to allow a customer who switches to a competitor to keep his or her current phone number. The two charges alone would push competitors' rates above Pacific Bell's current monthly rate, discouraging customers from switching.

``Their prices are way too high,'' said Stephen Bowen, an attorney with MCI who represents a coalition of long-distance and cable companies, as well as consumer groups and so-called competitive access providers, who already compete with Pacific Bell to link large customers to long distance carriers.

Pacific Bell's pledge to freeze monthly charges for three years comes at a time when technological advances and changes in network design are lowering, not raising, the cost of telephone service.

``What Pacific Bell is asking is to lock in rates at the top of the market,'' Bowen said. The PUC is scheduled to issue interim rules governing the competition April 26. Those rules would go into effect this summer, allowing business customers in some metropolitan areas to switch to competitive providers. Under the PUC plan, full local phone competition in residential areas would begin Jan. 1, 1997.

Pacific Bell asked the commission to bypass the interim rules and skip straight to full competition by the beginning of 1996, a year ahead of schedule. To do so, it proposed that all competitors be allowed into all markets -- including long-distance services, from which Pacific Bell is currently barred.

Published 4/04/95 in the San Jose Mercury News.

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