The cost of basic local telephone service may increase as much as 30% next year and an additional 23% in 2010 for land-line service, under new rates approved Thursday by California regulators.
The Public Utilities Commission voted Thursday to approve increases of as much as $3.25 a month beginning in January 2009 for the four major phone companies, including AT&T Inc. and Verizon Communications Inc., that offer land-line service. Another $3.25-a-month increase can go into effect a year later.
The PUC has deregulated most aspects of California phone services and was expected to deregulate it all next year. Instead, the commission opted to maintain a cap on local land-line rates for two more years. The decision was met with disappointment from the phone companies that had sought total deregulation and from consumer groups that opposed the rate increase.
The companies don't have to increase their basic rates to the full amount authorized Thursday. But if AT&T, the largest of them, increased its rates by the maximum this year and next, its current basic monthly charge of $10.94 would go up 30% to $14.19 in 2009 and climb 23% in 2010 to $17.44.
The three other companies have higher rates already, so a $3.25 charge would not be as high a percentage increase. Basic rates for land-line phones have remained about the same since the mid-1990s.
The new price ceilings for 2009 and 2010 are "pretty restrictive," PUC President Michael Peevey said in an interview after the meeting.
After January 2011, AT&T, Verizon and two smaller phone companies will be free to charge whatever they want for the basic local service in most parts of the state, according to the PUC.
Consumer advocates said the decision would hurt the poor and elderly.
"Phone service is as necessary to modern life as are other essentials like gas, electricity and food," said Mark Toney, executive director of the Utility Reform Network, known as TURN. "But without regulation, low-income and rural Californians could lose access."
TURN failed to persuade commissioners to conduct an affordability study before allowing the rate increases.
Currently, Verizon charges $17.66 a month for basic land-line service, Frontier Communications Corp., $17.85, and Sure West Communications, $18.90. Frontier and Sure West serve relatively limited areas in Northern California.
"Lifeline" rates charged to extremely low-income customers would increase by as much as 81 cents a month in 2009 and another 81 cents a month in 2010 and would be recalculated in 2011.
AT&T has argued before the PUC that there should be no ceilings on prices for basic service because of the high degree of competition for telecommunication business.
Traditional fixed-line phones now vie with cellular phones, cable system phones and voice-over-Internet services offered by Vonage and other companies.
On Thursday afternoon, AT&T spokesman Gordon Diamond said it was too soon to say whether his company would take advantage of the $3.25 increase. AT&T has "not made any decision on any pending rate increase," he said.
AT&T's current basic charges now are the lowest in the state and have been essentially frozen for more than a decade.
The PUC's decision to raise prices for two years and then let the market set rates is part of a continuing drive to deregulate wired phone service as was done with wireless phone business. In recent years, companies have raised charges for a variety of services, including directory assistance and unlisted numbers.
Prices can be set by the market because no single company has monopoly power to charge excessive rates, the PUC concluded in its decision.
"The commission struggled long and hard to find a fair balance between ending a decades-long price freeze on one phone market player that hinders true competition, and ensuring that consumers do not experience rate shock with a huge phone bill increase," Commissioner Rachelle Chong said.
Edison: Utility is fined $30 million. Page C4