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Phone Rates: Utilities Commission Rings Up Wrong Number

The staff of the Washington state Utilities and Transportation Commission contends that US West’s proposed $70 million telephone rate hike will benefit all of us. But as consumer advocates, the American Association of Retired Persons and Citizen Action believe that the major beneficiary of the increase will be US West stockholders.

Let’s look at the specifics of the case. The company is asking WUTC for a 29 percent increase, or $3 per month, in residential basic rates.

The company and the WUTC staff argue that US West needs the rate hike in order to improve their service quality. It’s common sense, after all: in order to invest you need cash.

Everyone except the company admits that its service has been terrible. “It’s like being in a Third World country,” said a speaker at the recent hearing in Kent. Speaker after speaker told of waiting months for service, routinely having calls disconnect, and about customer service representatives who never have service records.

Why is US West’s service so bad? Adequate investments have not been made in Washington and the company has moved thousands of people from service to sales in recent years.

Our fear is that US West will just use money from a rate hike to boost its profits and dividends to stockholders. This is hardly an unfounded concern. Last year, US West told the Legislature it could not promise that the new revenues would be put toward the telecommunications network.

Instead of opposing the rate increase because of poor service, the WUTC’s staff has suggested penalizing the company with a $50 payment when it misses an appointment or fails to install service on time. But speakers at the hearings agreed that the company never informs customers without service of their right to voice mail, cell phones, etc., while they are waiting. Why would the company behave differently about this?

Financially, US West stockholders are doing quite well. US West stock is up 38 percent for the year, in addition to the 7 percent dividends the company is paying out this year. This is clearly not a company that’s hurting for money.

Instead, US West complains that it’s not making its targeted profit rate in Washington. In reality, US West is not guaranteed any profit - even as a monopoly, the company still needs to earn any profits, just like any other business. Its authorized profit rate is a cap on how much US West can earn from its monopoly captive customers, not a guarantee.

Only last year, the WUTC found that the company was actually overearning by $91 million. Rate reductions and refunds ordered in that case have yet to benefit customers due to the company’s appeal to the state Supreme Court.

Now, US West wants a $70 million increase, to be acquired as follows: from residential customers, $54 million; businesses, $14 million; and directory assistance, $2 million.

Taken together with the decreases ordered last year by the WUTC, the net change would be: residential increase, $54 million; business decrease, $26 million; rate reduction in local long distance, $33 million; and reduction in the fees US West charges to interstate long distance companies, $34 million.

If US West gets its way in this rate case, it will have accomplished a shift from business rates to residential rates.

Instead, the Attorney General’s Office of the Public Counsel proposes no increase in residential rates. Since it is state policy to encourage and protect affordable and available phone service, and to ensure that customers pay only reasonable charges for telecommunications service, local residential rates should be the last place to look to increase the revenues of a monopoly telephone utility.

Residential customers and all other customers of US West already pay rates that adequately cover their economic or incremental costs. For many years, Baby Bell companies have claimed that residential customers were being subsidized by business and toll customers. Last year, the WUTC, after evaluating all of the evidence, conclusively found that residential customers are paying their way and are definitely not being subsidized.

US West’s residential telephone business is largely still a monopoly. Since US West still has a monopoly on residential service, consumers who have no choice should not be the first target for increased profits. Yet this is what US West proposes.

Some customers have choices. Hopefully, more will have choices in the future. US West says it is losing money to competition and therefore needs to raise rates to its remaining customers. As pointed out by AT&T;, that is neither how a competitive market works nor a path that will lead to competition.

Someday, a truly competitive market will make it possible for consumers to choose the company that offers good service and affordable rates. We are still very far away from that day - and US West ‘s proposal does not bring us any closer to it.