Bell Atlantic Proposes Plan To Keep New Jersey's Local Telephone Rates Among The Nation's Lowest

Bell Atlantic Proposes Plan To Keep New Jersey's Local Telephone Rates Among The Nation's Lowest

September 16, 1997

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Tim Ireland


most affordable in the nation under a plan presented today by Bell

Atlantic to the Board of Public Utilities.

Bell Atlantic's proposal calls for the creation of a universal service

fund that would go into effect only if needed to keep basic

residential telephone rates low.

Telephone companies doing business in New Jersey, including local and

long distance, would pay into the fund only if local carriers' per

line revenues fell below a benchmark set before the state's local

market opened fully to competition.

"Our proposal allows for the benefits of competition in the local

market, and the benefits New Jersey consumers have come to expect -

everyday low prices for local and regional toll service," said Len J.

Lauer, president and CEO of Bell Atlantic-New Jersey.

"Bell Atlantic's plan creates a fund that is only as large as

necessary. If market forces are sufficient to protect affordable

basic telephone service, then market forces will be left to work


Why New Jersey May Need a Universal Service Fund

The Communications Act of 1934 mandated that telephone companies and

state regulators work to keep basic local telephone service

inexpensive. The goal of this provision of the act, known as

"universal service," was to make certain that every American who wants

basic telephone service can afford it. The Telecommunications Act of

1996 also mandates universal service.

Traditionally, the Board of Public Utilities has encouraged universal

service by permitting local exchange carriers - such as Bell Atlantic,

Sprint United and Warwick - to earn high margins on regional toll and

optional services, such as Caller ID or Call Waiting.

These margins have subsidized losses Bell Atlantic and other telephone

companies have incurred in providing basic local service below cost.

For example, Bell Atlantic's typical residential customers in Northern

New Jersey pay $8.19 per month for local dialtone and unlimited local

calling. But it costs Bell Atlantic more than twice that amount to

provide the service.

When enough customers use Bell Atlantic's regional toll service or buy

optional deluxe services, the company can continue to provide basic

phone service to customers below cost.

In a market where Bell Atlantic is the sole local and regional toll

service provider, the company is certain to maintain low basic service


But the company's ability to offer low basic residential rates is

endangered when competitors target customers who buy high-margin

services. This cream-skimming effect reduces revenues needed by

telephone companies to subsidize basic service.

Today, large long distance companies are doing just that - providing

regional toll service at a high profit, but they're not using those

profits to subsidize basic residential service in New Jersey.

Under Bell Atlantic's proposal, competitive local, regional toll and

long distance carriers would help subsidize local service for

residential customers. They would do so only if they won a portion of

Bell Atlantic's business that was large enough to endanger the

company's ability to maintain local service subsidies.

"At Bell Atlantic, we value our customers," Lauer said. "We want to

preserve their ability to obtain affordable basic telephone service."

The new Bell Atlantic (NYSE: BEL) is at the forefront of the new

communications, information and entertainment industry. With 40

million telephone access lines and 5.5 million wireless customers

worldwide, the corporation - formed through the merger of Bell

Atlantic and NYNEX - is the premier provider of advanced wireline

voice and data services in the eastern United States and a market

leader in wireless services. Bell Atlantic also is the world's

largest provider of directory information and one of the world's

largest investors in high-growth global communications markets, with

operations and investments in 21 countries.