Communications Revolution Program #12-94: Intra-Lata, Competition & You KPFA Radio  Introduction by Jude Thilman  Remember when Ma Bell was broken up into small regional phone companies and you were bombarded with calls night and day from long distance carriers trying to sell you service? Well, now you may hear from all those same people again, only trying to sell you local service. I'm Jude Thilman. Local telephone competition is on the way, today on "The Communications Revolution."  Deregulation and competition for phone service means lower prices and better products, right? Well, some say yes and some say no. But one thing's clear: In the last decade the communications industry, led by the phone companies, made over $50 million in political action contributions to key legislators to promote competition. And that doesn't include perks, such as AT&T's annual Pebble Beach Golf Tournament for legislators. Now competition is coming to local phone service, with all the accompanying opportunities and confusion. Will it bring a golden age or a bloody feeding frenzy? Joining me today in the studios of KPFA are several key players in the coming competitive marketplace. Audrey Krause is Executive Director of the consumer group TURN -- Toward Utility Rate Normalization. Bob Lane is senior policy analyst to California Public Utilities Commissioner Jesse Knight. Mike Miller is Pacific Bell's vice president in charge of "Competitive Readiness." And Richard Severy is director of Regulatory and Government Affairs at MCI. Our guests will step into the ring right after we hear this report from producer Greg McVicar.  *****  (music)  (phone dialing)  Greg McVicar: You know, I can call the radio station from my office about 12 miles away in Walnut Creek, and it's a free call. From the station, I can call San Francisco, another 12 miles or so, and it too is a free call. But if I were to call the full distance, from Walnut Creek to San Francisco -- that's about 25 miles -- it would be a very expensive toll call -- over five-and-a-half dollars for a half-hour chat. Long distance calls to more distant cities are cheaper than that. Why? Because long-distance calls travel outside the monopoly service area and are handled by competitive long-distance carriers.  Now those competitive services are finding their way into the monopoly service areas and are capturing Pacific Bell's most valuable customers -- huge corporations that place rivers of calls every day. Ready or not, competition is coming, and Pacific Bell even has its own VP of Competitive Readiness -- Mike Miller.  Mike Miller: Yeah, you can go downtown San Francisco today, if you want to take a little walk down there, and you'll see that there are companies laying fiber in the street -- Teleport, Metropolitan Fiber, companies like that -- and what they do is go into large volume customers like business customers and say, 'Hey, I can take your traffic directly from this building and give it to and interexchange carrier. You bypass Pacific Bell and you save lots of money.' That's going on today. You look at the microwave dishes on the buildings up here. A lot of that's sending traffic back and forth from one building to the other that doesn't go through our facilities. So there's business out there that I want to win back if I can get my prices down to competitive levels. And that's my intent.  GM: But those prices are set by regulators and historically state regulators have set toll rates high to subsidize cheap basic residential service -- that's your basic phone line and free local calling. And California has the lowest basic rate in the nation at $8.35 a month.  But competition has made the toll monopoly obsolete, and now the State's Public Utilities Commission has laid out a blueprint to make the transition official by January 1st. That plan will reduce some cross-subsidies to create a more level playing field for competition. In other words, toll rates will come down by about 40 percent and basic residential rates will go up by about one third. In some cases even more.  MM: It's not a rate increase for Pacific Bell. We don't make any money out of this. What we do is lower the rates that we get today for our competitive toll services and as an offset for that we increase the rates for basic access which are being subsidized by toll services. So it's revenue neutral to us. We don't make any money. But by getting our toll rates down to competitive levels, now customers are able to get a proposal from Pacific Bell the stacks up with the competitors.  GM: But Regina Costa from the consumer group TURN -- Toward Utility rate Normalization -- believes the cross-subsidy argument is all smoke and mirrors.  Regina Costa: Yeah, it definitely costs much less than the telephone companies argue. The telephone companies are very good at juggling their numbers to produce whatever results they want and we showed, in our testimony, and the law judges in this case agreed with us, that the method that they used to arrive at a very high cost for basic phone service is just flat out wrong.  GM: Some observers have pointed out that Pacific Bell will get its hefty rate increase right away, while it may take years for competitors to claim a piece of the toll market. Meanwhile this plump monopoly begins the toll-competition game with 99 percent of the customers, and debt free. Consumer activists say the benefits of rate rebalancing will flow not only to Pacific Bell, but to the most sophisticated users of telephone services -- business and high-income residential. The losers, they say, will be the minimum wage working poor who will face higher basic rates but won't qualify for lifeline services.  (music)  (touch tone dialing)  GM: At first, breaking up the toll monopoly will be awkward. Customers will need to enter a five-digit access code to use an alternate carrier, although advanced users will no doubt program these numbers into their PBXs, speed dialers, faxes and modems. Ken McEldowney of Consumer Action.  Ken McEldowney: The real impact is going to come around the country and also in California when the long distance companies get permission, in a sense, to get you to presubscribe to them, so that instead of having to dial five digits to reach a long distance company you could say, 'I want all my toll calls carried by AT&T, Sprint or MCI.' I think that's when you're going to see a very sharp reduction in toll revenue for the local phone companies.  GM: McEldowney says the new ruling wipes the slate clean on January 1st, canceling all existing calling plans. There are 93 interexchange carriers which could choose to begin offering discount toll calling packages to businesses and residential phone customers come the first of the year.  KM: What that means is that Pacific Bell can start marketing toll plans now, which means that long-distance companies can start marketing toll plans. You're talking about mass confusion on the part of consumers. What are local calls? What are zone three calls, and things like that. So they may end up dialing a long-distance company to make a call from San Francisco to Oakland that would be free, but they're going to be charged because it's going to be part of a calling plan.  GM: But there's no turning back now. Heavy toll users have already walked away from the public switched network, and there's no reason why they should enjoy the low prices and leave us holding the bag. California has a reputation as one of the staunchest pro-consumer telecom regulators in the nation. But PUC President Daniel Fessler says government's approach must evolve to match the changing times, even if it means raising everyone's basic rates.  Daniel Fessler: If you believe, as I do, that introducing competition into these areas is both technologically inevitable but also has to be turned to work on behalf of people as customers, not rate payers of classical utility, but customers, then there's going to have to be an infusion of market reality into these areas where in the past, when you just had one monopolistic provider, you could have all kinds of cross-subsidies going on. That isn't going to work for us now and we're going to have to come up with a better means of defending the public interest than we had in the past.  GM: Over the last decade we've learned to cope with choosing our own telephone hardware and choosing from competing long-distance services. Now, battle-hardened long distance carriers will start pestering us with a bewildering array of toll options. Then, in a couple of years, once we've adjusted to toll competition, local-loop competitive services will be upon us. Cable companies will join with long distance carriers to deliver voice and information services directly into the home, bringing the legacy of monopoly telephone service to an end once and for all, then we'll have one more "former" to add to the list: The former Soviet Union, the artist formerly known as Prince, and the former telephone monopoly. Excuse me.  (phone rings) (answering phone) Hello? Well, I'm right in the middle of something right now. Would I be interested in a toll calling plan? Not exactly sure just yet. Forty percent off? Could you hold on just a second? Thanks. (ahem) For "The Communications Revolution" this is Greg McVicar.  ******   Host Jude Thilman: We're going to see new competition soon in local phone calls, long distance, regional toll calls, two-way voice and data services, cellular and much more. I'm Jude Thilman. We want to take a look now at specific ways this competition will or will not benefit all consumers.  Bob Lane with the Public Utilities Commission here in California. Let's use one example of a recent change to get our discussion going. Now some critics charge that in California at least, and I guess this is true in other states as well, the opening up of competition for local phone service is still not taking place on a level playing field. That the monopoly Bell companies have control of the network. They set it up, they've had it for years and they control it. One example of a new change is that callers who want to use a competitor to Pacific Bell in the new toll areas will have to use a special five-digit access code. That's pretty inconvenient, but is it fair as well?  Bob Lane: Well, Jude, I think it's more fair than not allowing there to be competition at all. You also have to remember that Pacific Bell is unable to provide long distance telephone service so that there is an unfairness there. This is something that the commission will have to balance as we move forward in this more competitive market.  Host: So it's okay to make it hard for consumers to have access to competitors on the local level because Pacific Bell doesn't have access to their business on the long distance level.  BL: I don't believe that... right now it's impossible for customers to access these competitors so at least it's an improvement from what we have now. It's not ideal, but it is an improvement from the status quo.  Host: Mike Miller with Pacific Bell. In the Senate telecommunications bill that's being sponsored by Senator Hollings there's a requirement that regional phone companies, like Pac Bell, have to wait until they no longer have a monopoly position before they can compete in new markets, such as long distance. Here in California, Pacific Bell holds perhaps 99 percent of the residential customer base, so is this requirement that you wait even achievable or is it fair?  Mike Miller: Well, the question comes in, wait until what? And it's very difficult to quantify what the waiting period is and what you're really measuring. Our belief is that if you're going to have competition you need to move ahead as quickly as possible and allow all parties to compete on an equal basis and that's really what we're advocating here.   Host: Dick Severy with MCI. As quickly as possible, if Pac Bell were allowed to enter the long distance market right now would that be fair competition?  Richard Severy: Absolutely not. Pacific Bell, as you pointed out, has a substantial monopoly. Everyone has to go through the local phone network to get access to a competitive service provider and so long as they have that monopoly control and market power they can impede competition. So the thrust of Senator Hollings' bill is to provide mechanisms and safeguards to promote competition in the local market after which time local phone companies could be allowed into the long distance market.  Host: There are allegations that Pacific Bell and other "baby bells" have invested in laying fiber and manufacturing cellular phones -- all sort of forays into these new markets -- ahead of getting permission from the FCC or new legislation, but with the reason given that Pacific Bell's getting ready for the day when they can compete. Bob Lane, are these forays into these other markets a violation that the CPUC should be halting?  BL: We have rules against cross-subsidization of competitive services and if they are cross-subsidizing we would investigate that, but I don't know of any allegations of that that have been made at the California Public Utilities Commission.  Host: You're not aware of any instances cited by consumer groups or by any research at all of Pacific Bell or Pacific Telesis investing in laying fiber in areas of California, any of that?  BL: Without authority? They, as I understand, have sought FCC authority to begin their deployment of fiber optics. Mr. Miller may be able to speak more directly of that.  Host: Yes, Mike Miller, inform us on this.  MM: Sure, deploying of fiber is not unlike deploying any other new technology and there's different applications of fiber, whether it be for video services or voice services and clearly that is the current technology that we and most other local exchange carriers are deploying -- fiber. It's the technology of the future and that's the way we plan to go ahead and provision our network and we're in conformance with all the requirements and guidelines of both the California Public Utilities Commission and the FCC, where we are waiting for some approval to get into the video applications.  Host: In the past year Pac Bell broke ground for new two-way video networks in four California locations and projected costs, according to Pacific Bell, are $16 billion. You guys must be pretty confident you're going to get regulatory or legislative green light for these new services. Is that right?  MM: Confident that we will get it and also that that's what the public is demanding. We're going through a major change. It's the topic here we're talking about today, it's a revolution in telecommunications and that revolution I believe is going to come right up because of the fiber deployment and the new technologies that we're all putting in the network, not just Pacific Bell but other local exchange carriers and interexchange carriers.  Host: No one doubts that the fiber is going to benefit consumers in the future. The question is, does Pacific Bell have a monopoly advantage? Audrey Krause, let's bring you into the discussion. Is it your sense that there's cross-subsidization going on here that creates and unfair, uncompetitive climate?  Audrey Krause: Well, nothing about the way regulators in California are going about opening up competition is really going to create competition or a competitive marketplace. They are in fact going out of their way to protect the monopoly as competition begins to develop. Now regulators who are truly intent on promoting a competitive market would be reigning in the monopoly in order to let competitors get out there and develop a competitive industry and the way our regulators in California have acted we are in fact not seeing any real competition from the consumer's point of view because we don't have direct access to the long distance companies for this new area of toll calling that they made competitive and certainly from the point of view of the competitors, as long as the monopoly controls the access to the local system they have a great competitive advantage.  Host: So what ways, be specific, you say that the CPUC, the Public Utilities Commission, is protecting the monopoly, and I assume you mean Pac Bell and the regional Bell companies. In what way, specifically?  AK: No competitive business out there has the ability to increase some of its charges to a captive sector of the public. In order to recoup what they anticipate to be losses from lowing other prices for competition. For example, if Sears department stores decide that it's necessary to lower the price on auto repairs because of competition from private garages they cannot simply go out and increase the price of washing machines to make up for the loss. That's the kind of activity though that our regulators allowed.  Host: Bob Lane, you're a senior analyst with the Public Utilities Commission, and how do you respond to Audrey Krause's charges?  BL: I would note that Sears is not limited as to what it can charge for services, enhances charging a market price for all of its services, whereas the local monopoly has prices that are regulated and prevents some services from being priced at what a market price might be.  Host: Audrey Krause.  AK: Well, I think the pricing of their services is an issue that the Public Utilities Commission in California has gone out of its way to avoid having to face head-on. Pacific Bell's cost studies were so flawed the judges didn't even allow them into evidence in the hearing and much of what's being done in restructuring our telephone service rates in California is based on claims made by the telephone company that have not been substantiated.  Host: Mike Miller, to you have any response to Audrey Krause?  MM: Yeah, let me comment on one point that was made by both Audrey and Richard, that everybody has to access a network through Pacific Bell. I would agree that for most residential customers that is the case. Clearly, that is not the case for business customers and that's the most lucrative part of the market. Those customers, business customers, have the option, which they have exercised and continue to exercise, to go around Pacific Bell's facilities to save money and I'm not blaming them for it, it's a fact of life. As we look at opening up the market areas, it's complex subject and we're willing to give up the 10XXX access code in a trade off to get into intraLATA. We're trying to get an even playing field here and without sounding like I'm trying to defend the commission -- they have a very complex issue here -- in that it's been determined, at least to our satisfaction here, and to many people at the commission, that the cost of providing basic service is someplace around $25 a month on average, and if you totally open up a marketplace without taking into consideration some of these factors we're talking about, like the different dialing patterns, the protection of some market elements until later, the pressure comes right back on basic rates. So my belief is the commission is trying to do a job here of balancing all the pluses and minuses here so there's not significant increases in a short period of time in basic rates which there will be that type of pressure as the markets are opened up to further competition.  Host: I want to come around to the question of long distance with MCI, but Audrey Krause would like to respond to what Mike Miller from Pac Bell just said.  AK: Yes, I just want to point out that this claim by Pacific Bell that the cost of basic monthly phone service is $25 a month and that it's currently being subsidized is not substantiated, it is in fact a myth being perpetrated by the telephone companies. There is no evidence anywhere to support this claim and judges who presided over eight months of hearings in California did not allow the studies that purported to prove this so I just want to make it clear, we don't think that's the real cost and a lot of parties don't.  Host: Richard Severy, in terms of long distance competition, companies like yours, MCI, have long claimed that competition for long distance service has reduced prices for consumers but Michael Noll who's the dean for the Annenberg School for Communications says that long distance rates have been declining at the same 4 percent annual rate for 80 years and the reason he gave is that technological advances have necessarily reduced rates. Now, with increased competition the rate of decline should have actually increased. What's your response?  RS: I'm not familiar with Michael Noll's report. I can report that a study by Professor Robert Hall from Stanford, which was issued last fall, demonstrated that prices have declined 65 percent in real terms since the breakup of the Bell system 10 years ago, at which time competition was first introduced in long distance market. The chairman of the Federal Communications Commission testified before congress earlier this year and he has done, as an example, the benefits of competition that ten years ago a ten minute call from Chicago to Atlanta would cost over $6.25. Today that same call would cost only $2.20. So the price of long distance service, by any measure, has fallen dramatically and it's fallen because competition has driven all service providers, MCI and others, to be more innovative, to improve service quality, to introduce new services and to give customers a choice. Audrey pointed out earlier that one of the things that's lacking in California is the choice for local service and to bring the benefits of competition into the local markets that we've witnessed in long distance is the goal of our company and many others and the federal legislation.  Host: Just speaking was Dick Severy who's director of regulatory and government affairs at MCI. Also with us are Mike Miller, who is Pacific Bell's vice president in charge of his company's strategy for competition, also Bob Lane who's senior policy analyst for the California Public Utilities Commissioner Jesse Knight and also Audrey Krause, who's executive director of TURN, a consumer advocacy organization. You're listening to "The Communications Revolution." If you'd like to continue talking about this topic after the show and you're on the Internet you can do so by dialing into our IRC channel at TRP12. Dick Severy with MCI, Senator Hollings in The New York Times says that long distance carriers, like MCI, should be allowed to compete for local telephone customers in order to prevent you from "cream skimming," as he calls it. That is, taking off only the profitable business customers instead of saving rural and inner-city consumers. I want to ask you and I want to ask the representative of Pacific Bell as well, isn't this where you all are putting your big investments, in R&D, into the business and the niche market rather than figuring out better ways to bring the new information super highway to the mass of consumers?  RS: No, that's not correct and I'm surprised at that reference because Senator Hollings has been a major proponent of competition, particularly in the long distance industry. You have to start somewhere. Twenty-five years ago, when MCI began, we provided a small microwave service between St. Louis and Chicago. As conditions and regulatory environment changed we've been able to expand the reach of our network. We now provide service ubiquitously throughout the United States. Wherever there's fair, equal access, we're there providing service. Many other companies also have nationwide networks. We do provide service to both rural and urban areas. A second point is that residential calling is a significant part of our business. Roughly half of MCI's revenues come from our residential customers so it's not true that we're only after the business customers. If you look at a number of the services that are either advertised or have been developed and marketed in the last years you can see that they are targeted specifically to residential customers -- "Friends and Family" and other discount calling plans. 1-800-COLLECT, personal 800, a number of other services are designed, developed and marketed specifically to the residential market and again, competition requires us and other long distance companies to be in every market, to serve every customer. So I think you'll see, as we move into local markets, the same phenomena will take place, that we will expand to provide service to all customers, whether in rural or urban areas or residential as well as business customers.  Host: Pacific Bell, as you expand into new markets and new services how are you going to keep up your obligation to provide universal service? That is, services to the rich and the poor, urban and rural, at reasonable prices.  MM: Well, of course, we do provide universal service today and we will continue that commitment as we put new facilities in and in many cases replace the existing ones so we're there in most of the market and we will continue to be there. We'd would like to make one comment, though, on the price decreases and partly in response to Richard's comment. What we're seeing in the interstate market is what we would term more and oligopoly as opposed to a fully competitive marketplace and I think in the current issue of Business Week there's some examples of that where over the last year and a half there actually have been increases in the prices charged by the interexchange carriers, but I would stress that's a retail rate increase. Where are decreases, as Richard pointed out, those are the ones that are targeted towards those customers who make large volumes of calls and that's our expectation as we open up local markets, as we've seen in the interstate markets. It's clear that's where the competition will come in first because that's where you make your money and not that that's an unrealistic way to approach a market, we expect that, but we do see them targeting as opposed to coming in on a broad-scale basis and providing services to all customers in all economic levels.  Host: Mike Miller, some consumer watchdog groups are concerned that Pacific Bell's history of crossing the line in terms of deceptive marketing practices, overselling ancillary services, et cetera, things that you've been fined for in the past are going to come up again if you're permitted to compete in new markets such as cable and long distance. Has Pac Bell cleaned up its act in that regard?  MM: Well, Pacific Bell has a lot of safeguards in place and we've shared a lot of this with the commission over the years. Those activities were back in the 1980s and we've got a very good track record going forward and we continue to keep it that way. We are very customer focused, our employees are, and we have the necessary communications channels in place that if our employees didn't feel comfortable with the marketing activities they would utilize them, so I'm very confident that's not going to be a problem going forward.  Host: Audrey Krause, are you as confident as Mike Miller?  AK: We are not confident of anything except that this company will continue to find ways to cheat and defraud customers. They've been subjected to substantial fines, multimillion dollar fines twice, the second of which was for activities that occurred as late as 1991 and we know of other examples subsequent to that that affected small numbers of customers so we hope that regulators in California will keep a very careful watch on them in the future.  Host: Regarding keeping a careful watch, Bob Lane, you don't conduct audits very frequently of Pacific Bell activities, do you?  BL: We currently have, for their costs, a price cap type of regulation. We do have a format that allows customers or representative customers to raise issues as has happened in the past for the commission to investigate and that is one of the very useful roles that organizations such as TURN play. They bring this to the commission and as we move forward to a more competitive environment we are likely to change our regulation from cost regulation of the prices to more consumer protection issues.  Host: More consumer protection. We're discussing competition in the phone business. I'm Jude Thilman. This is "The Communications Revolution."  We'd like to hear from you right now. Give us your thoughts on the phone companies, competition, deregulation. You can join our discussion with questions and comments by calling 1-800-848-2298. That's 1-800-848-2298. We'll be right back. ******  Host Jude Thilman: We're talking about phone companies competing for new services, new two-way interactive video, data transmission, voice transmission, all the information super highway services that are coming down the pipe and whether current inroads into opening up local competition and regional toll calling competition and long distance can help provide consumers with some of these new services as well. Earlier this year Pacific Bell publicly suggested for the first time a rate structure for access to the new information super highway. A basic service package that would provide dial tone and other services like 411 directory assistance and a basic plus package which would give users access to ISDN or data transmission and access to the Internet. Dick Severy with MCI, what do you think of this plan and do you have a comparable suggestion on how the average consumer can have access to information services beyond basic telephone?  RS: I can't comment on the specifics of Pacific Bell's recent local rate proposals. I can suggest that there are a number of ways that customers today can access a variety of information services so long as 800 service, for example, provides access to literally hundreds of information services and databases. Also any consumer with a modem and a personal computer can access, over the phone line, hundreds if not thousands of information services, databases, the Internet, and that's using existing copper wires. ISDN is certainly an improvement and can provide some additional capabilities. I think the long term answer to what's the best way to provide consumers access to the new technologies is to promote competition to allow other vendors, other service providers, to enter the market to give customers a choice. So long as the local phone company is the only entity that can provide the services, customers will be denied choice, the availability of innovative and new services and affordable prices, so interjecting competition into the local service market is the best way to give customers the choice and the access to the information services that you referred to.  Host: Dick Severy might not be willing to comment on the Pacific Bell proposal but the MCI vice president, Jim Lewis, did comment that this proposal, this basic plus package, would be akin to a government subsidy for a software package in the homes. Bob Lane, is that something where the government, the PUC, the regulatory commission needs to step in and sort of call a halt to that?  BL: Here the commission has to balance a very delicate process which is that there is a need to ensure affordable access, but many of these technologies, particularly in their early years, are quite expensive. The rate plan for residential ISDN was recently approved by the California Public Utilities Commission. I think that the answer is that there are not choices for the vast majority of customers other than receiving ISDN, or that service from Pacific Bell, or their local exchange company. If we want to get more innovation in this access services we need to have a diverse group of people trying to solve those problems and that's what you get from competition is multiple solutions.  Host: Seems to me the answer to every question I throw out. Let's bring our listeners in the conversation. From San Francisco we're joined by Alan. Welcome to the program.  Caller #1: Well I have a concern about excessive competition, that employers, i.e. the telephone company, will offer ultra-low prices to get their customers and then turn around and take it out on the backs of their workers, like Sprint apparently has done at the Spanish language office in San Francisco. What's going to prevent that and what's going to protect those people from getting cut off from medical care and all the benefits of being an employer and where do unions fit in there?  Host: Thank you very much for your call Alan. Where do the unions fit in with all this, Audrey Krause from TURN?  AK: This is an ongoing concern in the telecommunications industry. They have in fact been laying off thousands and thousands of employees because technological changes make it possible for the phone companies to provide the same or a higher level of service with fewer employees over time. This creates situations in which people loose their jobs and it certainly is a problem. It seems to me, though, that this is somewhat outside the area of what regulators would be looking at and it's more an issue between the organized employees and management as to how they're going to deal with that and whether they're going to provide retraining programs or anything else to help ease the transition.  Host: Well it's certainly part of the overall hype we're hearing of the new telecommunications infrastructure. The White House Council on Economic Advisors said that deregulating the phone industry could create 1.4 million new jobs by the year 2000. That seems quite an incredible promise, since divestiture in 1984 the baby bells have reduced their work force by over 84,000 people. So again, we're up against the reality and the hype and trying to sort out the two. We can pursue that in a moment, but I do want to let our listeners know that they can join the conversation by calling 1-800-848-2298. We have Anna Maria with us from Sacramento.  Caller #2: By the way. Thank you, Jude, for this show and thank you KPFA for this show. I am very grateful for it. I wanted to know who in the world is going to make sure that these individual companies that own these public telephones are accountable to the consumers. I have lost so much money with faulty phones and I have tried to follow their quote, unquote procedures, safety procedures to get my refunds and I have never yet been able to reach anybody ever. They just give you the run around and this number and that number and this address and that address and it just has never worked yet. So I want to know that and I do want to emphasize again that it is ridiculously expensive now to call Davis from Sacramento, or Knights Landing or somewhere nearby and it just makes no sense that it's cheaper for me to call to France or to somebody in Minnesota.  Host: Thank you for your call Anna Maria. Let's go to the phone company here, Mike Miller, can you answer this nuts and bolts question?  MM: I think it's kind of a two-part question. One had to do with the competitive pay telephones that are out there and the California commission does have regulations that those people are supposed to adhere to and I'm not familiar with the specifics but there are requirements that they're supposed to be full-functioning companies. Clearly, because I've had some experience myself with some of those phones, I understand what Anna Maria is talking about and I sympathize with her and I guess I would have to say, when in doubt look for a pay telephone that's got a Pacific Bell logo on it. On the second part of her question, it's ridiculous to pay more for calls of longer distance than short distance. I totally agree there also and that's what we're about to be introducing here, the first of the year, in California, and you're going to be seeing a lot of advertising, not only from Pacific Bell but from other providers telling you about the new lower toll rates that we will have in effect the first of the year and the commission has already said the rates will be approximately 44 percent lower and that look like it's correct from our perspective so hang tight Anna Maria, we'll be coming out to you with some very good information and you don't have to really do anything, just sit there and watch your bill go down.  Host: All right, our number again is 1-800-848-2298. From San Marino we'll hear from Doug. Hello, Doug.  Caller #3: I was wondering how soon, or if it's possible, that MCI will be able to offer wireless equipment like a "cell" phone connection so as to circumvent the local phone company and so people could access like MCI directly. Is that going to be offered very soon?  Host: Thank you very much for your question. Dick Severy with MCI.  RS: There are a couple of responses. One, MCI is not currently in the cellular business. The next generation of cellular radio services is called "personal communications service." The Federal Communications Commission is planning to license radio channels, or to auction and license radio channels, for that service later this year. MCI intends to be a full participant, an active provider of wireless service but as I indicated, the technology and the frequencies are not available yet. Another part of your question talked about accessing long distance companies through the cellular system and that requires what we call equal access, to be able to... a cellular customer should be able to use their long distance service provider just like a customer has that choice in their homes and that's an issue we've asked the Federal Communication Commission to address.  Host: Dick Severy, let me tag on to that. Some say, and there is a considerable investment going on from MCI in wireless, I mean, even before you've been approved to go into that area as I read it. Is that correct?  RS: That's correct. We are conducting trials and experiments in a variety of cities in the United States. Testing the technology, testing the equipment.  Host: Some are saying that you're doing this just so you can do an end-run around Pac Bell's control of the network and their high-access charges and maybe skip out on being part of the network altogether, would that be unfair? What is your commitment to providing plain old telephone service to the majority of us?  RS: We have a strong commitment to that today. As I indicated earlier, half of our revenues come from residential customers. It's a significant part of our business. Wireless technology, cellular personal communication service, have many, present many opportunities. We don't view that immediately as a vehicle for bypassing or providing alternative access to the phone company. You're absolutely right, that the access charges that we pay to hook up are customers are incredibly high, way too high, and we're seeking other ways to get around that, but wireless is probably not the most ideal way for achieving that.  Host: Bob Lane, you want to jump in here?  BL: I think your caller brought up a very interesting point and that is, there are technological solutions that are becoming available that call into question the precept that there is some natural monopoly for the provision of local telephone service. Changing technologies are one reason why the California Public Utilities Commission in a report to Governor Wilson issued about a year ago called for opening up this local telephone market to competition by the beginning of 1997 and why it choose not to try to predict which technology that would be in this area where technology is changing so rapidly. The commission felt that would be a very dangerous path to take.  Host: From Occidental let's here from Ben, on the program. Welcome, Ben.  Caller #4: My question is, how come in the United States I have to pay up front for the three minutes of my call if I call from a public phone whereas in almost all the other countries I've been in the world I could buy ten seconds of call. If I had a quarter in my pocket and I want to leave a short message saying I missed my bus, I'll be home a half-hour late, I don't need to pay for three minutes of a call. Could somebody answer that?  Host: Who has the answer to that basic question? I've often wondered that myself when I'm at the BART. I don't need three minutes of time on the phone. Anybody know? Nobody has an answer?  RS: That would be the rates charged by the local pay phone provider or the local telephone company if, in your example of BART, by Pacific Telephone, they set those rates. Pacific Bell just introduced a new rate that the Public Utilities Commission approved last week which penalizes the short calls by establishing a call set up charge which many people think will penalize consumers who want to access a database, do quick credit card verification or a number of other kinds of transactions so the initial price for a call will actually go up in some instances.  Host: Mike Miller, that doesn't sound very fair?  MM: Well, I need to correct a point here. The set up call applies to the interexchange carriers. Now, whether or not MCI and others want to pass that on to their end users, that's their option. But the initial cost of setting up a call is much higher than the time it goes on once it's set up, so we're simply passing on the cost to them and what they do with it it'll be their option.   Host: Audrey Krause.  AK: I just want to throw in, that's exactly the kind of anti-competitive activity that makes it hard to develop a competitive market. If Pac Bell is changing rates in a way that imposes costs on their competitors then their competitors have a choice of either absorbing those costs or passing them on and if they pass them on they become less competitively advantaged.  Host: From Alameda we have David on the line. Hello, David.  Caller #5: Hi. I'd like to ask a question. I heard you say a few minutes ago that you were touting the wonderful news that at the first of the year the toll calls are going to be reduced by 44 percent. You didn't bother to add that the way that revenue is going to be picked up is by increasing the basic rates including universal lifeline service, which is the poorest of the poor, by 40 percent. And I'd like for that to be included in the record, thanks.  Host: Thank you so much, David. I think it was mentioned but we haven't spent enough time on it. Audrey Krause, you have actually stated that these rate changes beginning January 1st are going to mean an 80 percent hike for poor and elderly residential customers.   AK: That's right, and the overall for residential customers, about 70 percent of residential customers, will wind up with a higher total bill so while this earlier caller from Sacramento, Anna Maria, may save some money on her calls to Davis, a majority of Pacific Bell's customers, and a majority of general telephone's customers, will wind up with a larger bill in total at the end of the month as a result of these changes, so David is absolutely right. There are major increases in local service rates and the lifeline rate for our poorest that are part of this change. We're not given nearly as much attention by regulators when they announced this decision as the toll rate decreases that are mainly going to benefit business customers.  MM: Jude, can I make a comment on that, please?  Host: Please do, Mike Miller.  MM: The numbers that have been indicated, the basic rates are going up but I think we have to remember that basic rates in California are some of the lowest in the nation even at the new level. The average price the consumer pays across the country for basic residential service is about $16 a month. With the increase in California, that goes up to $11.25. If indeed that does cause problems for customers we do have a lifeline service available in California which is the cheapest in the nation. California also has over 50 percent of the people in the United States that are on lifeline here in California. So it's our belief that nobody is without a phone in California that really doesn't want one and our numbers also show that the majority of our customers will see a decrease in the bottom line of their bill and that goes for lifeline customers as well as everybody else. Forty-four percent toll decrease for those who make toll calls will have a big impact on the bottom line.  Host: I want to get back to our callers, but Audrey Krause from TURN is very anxious to respond to what you just said Mike Miller.  MM: I thought she might be.  AK: I should just add that when we analyze the impacts of these rate increases we used information provided by Pacific Bell and in fact a majority of residential customers will wind up with higher bills and the largest beneficiaries of toll reductions will be businesses. In some cases the toll rates are actually going up at the night and weekend hours that many residential customers would be calling.   Host: If you're both using the same figures, I don't understand why you disagree.  MM: We're really not using the same figures. The numbers Audrey is citing were several years ago on our case and obviously because they had some numbers that she enjoyed more, she's retained those. We've had three or four revisions since then and with the current reductions in toll rates, the 44 percent, as you work through the same factors, it comes out with a decrease and more of our customers see a decrease on the bottom line.  Host: Bob Lane, with the Public Utilities Commission, you're charged with protecting consumers in this instance, are you satisfied that with these rate changes that will take effect here in California January 1st that the low end user, the general consumer, the low income, the elderly, the rural user, are not going to be hurt?  BL: I think you'd have to break each of those list you put up...  Host: In general...  BL: Rural customers may in fact make more toll calls and hence would see a reduction in their bill. It depends on how many toll calls you make. One of the problems with all of the analysis of bills assumes the current level of usage. Looking at the experience in the long distance market, as rates went down people expanded what they used their phone for. For instance, this would lower the cost of telecommuting. It might spur more use of the network in that fashion. So it's very difficult to say exactly what the impact will be in the future, but the California Public Utility Commission is confident that this is beneficial to Californians.  Host: To all Californians.  RS: If I could add one thing here, the discussion of rate impacts is assuming that the consumer stays with Pacific Bell for all its calling. Today, competitive long distance companies' prices for toll calls in California, where we're allowed to provide them, are significantly less. They're more than 44 percent below Pacific Bell's toll rates, so a customer who exercises the choice and gets their local toll service after January 1st from someone other than Pacific Bell, like MCI or one of the other hundred long distance companies, should find even more significant rate reductions.  Host: Let's bring another caller into the discussion. From Carson, we'll hear from George. Hello, George.  Caller #6: Hello. The call from the gentleman who was asking about the three minutes up front and the charges from like I believe you mentioned BART brought to mind and interesting question that I had and that was, when I fly, for instance, through Dallas/Fort Worth I can, for 25 cents, call anywhere in Dallas or Tarrant County, any of my friends in Dallas, my family in Fort Worth, whatever. I was wondering, when they raised the rates on the public phones here from 10 cents to 20 cents why didn't they just go ahead, make it a full on quarter, which is easier for most people to come with most of the time anyhow than two dimes, and widen the calling area for the quarter?  Host: There's a question. Thanks so much for your call, George.  AK: The local calling area in California is one of the smallest in the nation which is why comparisons between the cost of monthly phone service in California and the cost of monthly phone service in other states are really unfair comparisons. We have about a twelve-mile local calling area and that applies to your home phone and your pay phone. I lived in Minneapolis for a year and the local calling area was about 50 miles, so the slight difference in cost there was certainly giving me a lot more local free calling area for the extra dollars. To make changes in the local calling area for pay phones they would have had to make changes in the local calling area, period, and our regulators don't seem willing to do that.  MM: I think there's one other point to point out too though that the number of people within a twelve-mile calling radius in California is significantly larger than the number of people in Minnesota. So it has to do with density as well as distance and it was about a year and a half or two years ago, I believe, we expanded that local calling area from eight miles to 12 miles, so we have been pushing out that boundary.  Host: From Reseda we'll hear from Frank and all you callers who want to join our discussion you still can. Our number is 1-800-848-2298. Hello, Frank.  Caller #7: I've got a question for the panel. First of all, I just received something from Pacific Bell in the mail stating that my monthly service will be going up from $8 to $12 a month as of the first of the year and my father lives in the GTE area and his monthly service charge will be going up from $12 to $17, and that's just a flat fee, that's not for call waiting or anything like that.  Host: Do you have a question, Frank? This is what we've been discussing through this show.  Caller #7: Can they answer why that will be happening?  Host: It's a big question. Let's see if you can do it in a short way. Thanks for your call, Frank.  AK: Why don't we ask Bob who's representing the commission's to answer that since this was the commission's decision.  Host: Very briefly, Bob.  BL: Well, I'd like to address the question about the toll differential, or the cost differential between Pacific Bell and GTE and previously Pacific Bell customers had paid a slightly higher rate so that GTE customers could pay a lower rate. And with this decision we've ended that transfer of payments from Pacific Bell customers to GTE customers, so that is why you see a greater differential between those two rates today than you had in the past.  Host: Mike Miller from Pacific Bell.  MM: I think I would agree with what Bob said there. This is one anomaly, what happened is you start to make changes in what was once a monopoly marketplace and over the years we've had excellent telephone service in the United States and the prices have been very reasonable and they will continue to be reasonable, but that's been brought about because a lot of averaging and intentionally changing cost allocations so we keep basic rates low and anytime you open up what's been a monopoly marketplace and introduce competition you're going to have these things coming out that people have to address and this is one of those anomalies. It cost General Telephone, for a lot of reasons, more to provide basic service than it does Pacific Bell and what you're seeing is a reflection of the rates are now differing because we don't, what we call, pool a General Telephone share cost anymore. We're two separate companies. So these kind of changes will continue to come as we further open up the marketplace to more competition.  Host: You're listening to "The Communications Revolution." We're discussing rate changes in your telephone bill, but more broadly we're discussing competition among various phone providers and the dawn of new information services, whether you're going to benefit from them by increased competition and how you're being protected by government agencies. From Albuquerque, let's hear from John. Hello, John.  Caller #8: I've moved out here recently from the Bay Area and it's interesting what a different world this is, under U.S. West, than in the San Francisco Bay Area. I think the type of discussion you're having there is indicative of, broadly, of a paradigm that needs shifting. You're approaching this from a perspective of, for example, utility rate normalization as if this is a utility and as if rates relate somewhat, and as if these companies you're dealing with have futures or are going to be the key carriers of this kind of information. In Albuquerque it takes a month to two months sometimes to get new phone lines in. It's very expensive. You have to go through quite a lot of grief and then the company is looking at the possibility that the carrier will becomes Jones Cablevision , or someone like that. There won't even be a phone company involved in the loop in the future. They're talking openly about that. The telecommuting comment that somebody tossed off there is crucial. Here in Albuquerque I spend a lot of money on gasoline. In San Francisco I spent none. But my clientele are in New York and Boston, San Francisco, so I telecommute. I just spend my money on going shopping for food, which I used to walk for in San Francisco. The whole world is changing a lot and to have this 30s perspective of that TURN has on the one hand and that the utilities have on the other -- 1930s -- is quaint, and it's a characteristic of the Bay Area, I think. There's a lot more change going on. I rack up $500 to $1,000 a month in phone bills over brokers like people cheaper than MCI and my local bill here is around $125 for just the connections and tricking computer services that they offer. But on the other hand I would be spending far more if I was flying to see clients or I wouldn't even be able to be in business.  Host: Thank you, John, for bringing us to the macro level again, and I think that your inference that a lot of things are sort of balancing each other out as changes are made may be true for the middle class. I'm concerned, and I want to pull this back in the few minutes we have left, to those people who are least served by new services and most hurt by rate changes. Senator Inoye recently proposed a rider, not so recently, but in the course of the telecommunications bill that's in the Senate, that would reserve 20 percent of the new information highway for schools, libraries, public broadcasters and other nonprofits. Now that's gotten whittled down to 5 percent and I'm reading that, under pressure from telecommunications companies and phone companies, it could be whittled down to even less than 5 percent. I want to ask Mike Miller from Pac Bell and Dick Severy from MCI, what are your companies' commitments to public sector access. Mike Miller.  MM: I think ours is pretty well-known. We have what we call a "California First" program and we're concentrating on California, in part because that's the only market we can serve and hopefully that will change for the future, but as many of you know or read in the paper we are out providing ISDN to all the schools in California and making sure that they are wired to have access to the information highway and the new technology. This is clearly an issue, and John touches on it though, is, how do you do this going forward, and there's no easy answer to it. It results back in somebody subsidizing someone else and I think that's...  Host: I'm going to have to cut you off. I've run you up against the clock and I'm so sorry Mike Miller from Pac Bell, you get the final word. Our thanks to all of you who participated -- Audrey Krause, Bob Lane and Dick Severy as well for their participation. Thanks to all of you who called into the show. Remember, you can request copies of the program and reach us with your comments and questions by calling area code 510-848-6767, extension 264, or by sending e-mail to KPFA@well.com. On behalf of all the staff with "The Communications Revolution," I'm Jude Thilman. Thanks for listening.  ******   .