MCI Communications Corp. launched a pre-emptive strike yesterday aimed at forcing Bell Atlantic Corp. to open its telephone network to competition in Maryland.
MCI proposed a plan to the Maryland Public Service Commission that would free Bell Atlantic of all earnings regulation, but force it to hold the line on local phone charges and cut its rates on toll calls.
Urging the PSC to make Maryland a "showcase state" in telecommunications competition, MCI urged a total revamping of the state's system for controlling telephone prices and ensuring service for all.
MCI estimated that its Competition Plus plan would save Maryland consumers $72 million a year in charges for in-state long distance calls and help foster competition that would drive down local phone rates.
MCI said Maryland is the first state in which it has unveiled the plan, which it calls a "prototype" for plans it will propose to state regulators nationwide.
While Bell Atlantic is the direct target of MCI's proposal, it actually represents a challenge to all incumbent local phone companies.
By filing a plan for revised regulation before Bell Atlantic weighed in with its own, MCI has usurped the local telephone company's traditional role as the party that frames the debate.
"I've never heard of an inter-exchange carrier make a proposal for price caps before the incumbent local phone carrier," said Vivian Witkind Davis, policy analyst at the National Regulatory Research Institute in Columbus, Ohio.
The filing apparently caught Bell Atlantic flat-footed.
"I was surprised," said Bell Atlantic lawyer Randal Milch, who described the filing as "opportunistic."
By proposing a price cap form of regulation, MCI has, in effect, seized the flag of regulatory reform from Bell Atlantic in Maryland. The local phone companies have long argued that traditional rate-of-return regulation should be replaced by price caps, which let them benefit from improved efficiency.
This year, at Bell Atlantic's behest, the General Assembly gave the PSC authority to change the way telephone service is regulated in Maryland.
But the price cap plan MCI has proposed is far different from those adopted in other states in Bell Atlantic's region.
On one hand, it would favor Bell Atlantic by including no productivity factor -- a formula adopted in some states that forces telephone companies to pass on some of the savings they are realizing from improved technology.
It also would give Bell Atlantic complete freedom to reduce its rates to meet competition without prior approval.
The kicker is that Bell Atlantic would have to provide access to its network to competitors at wholesale prices based solely on economic costs, including a 10 percent profit.
Donna Sorgi, MCI's regional director of regulatory and governmental affairs, estimated that such a change would reduce the access rates that long-distance companies pay Bell Atlantic for in-state toll calls from about 7.5 cents a minute to 0.8 cents.
Access charges have traditionally been set substantially above costs in order to subsidize the incumbent carrier's costs of providing universal service to all areas of the state.
MCI and other long-distance carriers have long complained that local telephone companies inflate those costs.
According to MCI, Bell Atlantic collects about $85 million more on access charges than it actually needs to provide universal service. MCI proposed to replace those charges with a $13 million annual direct payment to Bell Atlantic for two years while the PSC devises a competitively neutral universal service fund.
MCI said that if all long-distance companies pass along their access charge savings, which Ms. Sorgi promised MCI would do, Maryland phone customers would save $72 million a year.
But Bell Atlantic's Mr. Milch said the cost of providing universal service in Maryland is more than $60 million.
"At first glance, Competition Plus is a plus only for MCI," he said.
"They say, 'Let's take $72 million from Bell Atlantic and give it to MCI.' "
In fact, the $72 million would be shared with other long-distance carriers. Perhaps for that reason, the plan drew praise from AT&T.;
"This is more than a straw man. This is a direction in which we ought to be going," said Ross Baker, AT&T;'s regulatory affairs director for Maryland.