If Chesapeake & Potomac Telephone Co. wants to spend billions of dollars to upgrade its network so it can roll out more fancy, high-tech services, who should get stuck with the bill: C&P; or consumers?

"The idea of having a state-of-the-art phone network in Maryland has a lot of charm," said People's Counsel John M. Glynn, who represents ratepayers before the Public Service Commission. "But the question is: Who's going to pay for it? Because there's no question if we do what C&P; proposes that phone bills will be higher than they otherwise would be."

To be sure, the 20-year, $8 billion improvement plan will allow C&P; to sell a lot of new services to customers. Backed by a modernized network, C&P; says it could provide two-way video, high-definition television, video on demand, video mailboxes, medical imaging and other interactive services. Other possibilities: Telecommuting centers for workers, mobile medical testing (at bedside, home or in cars), and long-distance learning (piping in classes over video lines) for educational institutions.

Such improvements, C&P; says, are crucial to Maryland's economic development. And the company has some powerful allies, including Maryland Economic Growth Associates, a private, Baltimore-based economic development organization.

But before proceeding with its upgrading plan, C&P; wants some regulatory flexibility and accounting changes approved by the Public Service Commission. If the PSC agrees, that could translate into higher phone rates over the long term.

As part of the debate over modernization, state regulators must answer some tough questions: How much technology do consumers really want, or need, from the local phone company? Do consumers really want or need, for example, to buy interactive video products from the phone company when other companies sell similar services?

And who really benefits when C&P; sells these expensive new services? The public, C&P; or Bell Atlantic stockholders?

Many questions about costs have yet to be answered. For example, if C&P; wants to develop and sell enhanced services to bolster revenues, and consumers want to buy them, who should pay for the technology upgrades? C&P; or its customers? And when? Before the market for these new services develops, or after?

Maryland already claims one of the most technologically advanced telecommunications networks in the world. It's the result of modernization efforts by Bell Atlantic Corp., the parent company of C&P;, that began almost as soon as the ink was dry on the 1984 divestiture agreement that broke up giant AT&T.;

Because of those early efforts, Marylanders today have access to a variety of telecommunications services, such as Caller ID and Answer Call, C&P;'s version of an answering machine for the home. Phone customers in some other states don't.

But those conveniences have come at a cost.

Marylanders pay about $17 a month for basic phone service, one of the most expensive rates in the nation. In the contiguous United States, Delaware (also served by Bell Atlantic) had the highest monthly rates at $18.12, while North Dakota had the lowest at $14.56, according to a 1989 survey by the United States Telephone Association.

In Maryland, the higher rates have been used to help pay for modernization of C&P;'s network.

C&P; doesn't need permission from state regulators to further modernize its network. But it does need permission if it wants to pass along any of the costs to consumers.

C&P; has sidestepped crucial financing questions. At a commission hearing last month, C&P; didn't spell out how it intends to pay for its latest round of upgrades. But it did suggest that it needed regulatory flexibility from the commission and a faster depreciation schedule on existing equipment, both of which could affect ratepayers.

Likewise, the company has not spelled out why it should be permitted to keep all profits generated from new services (in the regulated world of C&P;, profits are used to subsidize basic phone rates).

Meanwhile, the company has left open the option of raising local phone rates to cover the cost of the upgrades. In comments to the commission last month, Frederick D. D'Alessio, C&P;'s president and chief executive officer, said only that C&P; "will remain committed to keeping basic rates affordable."

But the company has been long-winded on the warm and fuzzy parts of its plan.

In comments submitted to the PSC in October, C&P; painted a rosy picture of how a modernized infrastructure might benefit Maryland and improve the quality of life. The network will propel the state to the forefront of telecommunications, acting as a magnet for new business and investment, C&P; said.

"I am convinced that modernizing the local network can improve the Maryland economy," Mr. D'Alessio told state regulators last month.

That view was shared by some of the more than 25 parties that submitted comments to the commission about C&P;'s modernization plan.

"Maryland's future is directly linked to its telecommunications strength," wrote Donald Hutchinson, head of Maryland Economic Growth Associates. "If Maryland invests sufficiently in its telecommunications infrastructure, the state's technical superiority can mean more jobs, a broader tax base, and the creation of a strong platform for growth and opportunity."

C&P;'s modernization plan calls for expanding the existing backbone of Common Channel Signalling (CCS), the technology that allows C&P; to provide such services as call-waiting and Caller ID. Likewise, C&P; wants to expand deployment of the Integrated Services Digital Network (ISDN), another state-of-the-art telephone technology that greatly expands the capacity of the network to transmit voice, data and video.

Then there is the Advanced Intelligent Network (AIN), which makes it easier and faster for phone companies to introduce new-age services across their networks.

Finally, C&P; wants to wire every household in Maryland with fiber optic cabling. Fiber-to-the-home will allow C&P; to pipe in a plethora of services that marry the phone, the computer and television: two-way video programming, high-definition TV, video on demand (home movies, for example, that could be digitized and stored in electronic libraries at home) and video mailboxes.

There are also a number of applications for health care. The Johns Hopkins University, for example, believes implementation of ISDN is crucial for some medical services to evolve. Doctors, for example, could use ISDN lines to get bedside readings of medical tests. Once ISDN is widely available, many of those tests could be performed and analyzed at home or while traveling in the car, according to Christopher McManus, vice president of information systems for Johns Hopkins Hospital.

Likewise, C&P; believes its plan holds a lot of promise for education. Schools could be linked via interactive video lines for shared classes.

But some fear that C&P;'s technical superiority will come at too steep a cost to ratepayers.

The American Association of Retired Persons, for example, says many people can't afford basic phone service, much less the special services C&P; wants to sell in the future.

Allowing C&P; to modernize its network and pass along some costs to consumers will deprive even more people of basic phone service, the association argued in comments submitted to the PSC last month.

"We are not opposed to these new technologies. We welcome them. But we do not believe that basic telephone customers should pay for them," said AARP, which has 600,000 members in Maryland.

There also is some concern that C&P; is in too much of a hurry to deploy new technology and roll out new services. Modernizing too rapidly, say critics, could hurt the company and Maryland.

PSC staff members, for example, don't want to see C&P; rapidly upgrade its network, only to have new technologies develop that require another expensive, massive overhaul of the system a few years later.

Some critics of C&P;'s modernization plan point to the Picture Phone of the 1960s, a creation of American Telephone & Telegraph Co. that allowed customers to see who they were talking to at the other end of the line.

The phone was hailed by AT&T; as a revolutionary invention that would change the way people, families and businesses communicated with each other.

The Picture Phone was a flop. Buyers stayed away and the phone was pulled from the market shortly thereafter.

Mr. Glynn says C&P; could make the same mistake.

"We don't want to be hasty and do the wrong thing," says Mr. Glynn. "Because if there's one thing we've all learned from watching technology over the past 10 years is that we really don't know where the technology is going to be 10 years from now."