AG assails Verizon rate-hike bid

Reilly: Request ‘unacceptable’

By Peter J. Howe, Globe Staff, 6/7/2002

Massachusetts Attorney General Thomas F. Reilly said yesterday that Verizon Communications’ bid for permission to raise basic phone rates 5 percent per year indefinitely is ”unacceptable.” On Wednesday, in response to an order from the Department of Telecommunications and Energy to revamp its seven-year-old rate cap, Verizon proposed a $1.90 residential monthly rate increase to offset a $60 million annual cut in charges to other phone companies for using its network. Verizon also asked the DTE to let it raise rates as much as 5 percent per year without prior regulatory approval and to remove virtually all regulation of rates it charges for business service.

Reilly, a Democrat who represents consumers in DTE proceedings, said: ”Verizon proposes a significant rise in consumer rates without a lot of evidence or backing to explain why such an increase is necessary. ”In a time when inflation rates are well below 5 percent and technological advances are making it less, not more, expensive for Verizon to do business, this is unacceptable,” Reilly said.

Verizon spokesman Jack Hoey said Reilly’s comments indicated he wanted to go back to old-fashioned utility price regulation based on guaranteed profits rather than a free market. ”The philosophy of rate-of-return regulation is out of step with the direction most states, including Massachusetts, have taken,” Hoey said. ”The market, rather than regulation, most efficiently determines prices. Market-based pricing benefits consumers.” Hoey would not comment on why Verizon thinks it would need to raise rates as much as 5 percent per year.

Reilly also blasted Verizon’s request that the DTE waive a 1995 consumer service penalty plan under which it can be fined up to $19 million a year for poor retail customer service such as excessive trouble calls and slow repairs. Verizon has not had to pay any fines under these sanctions for the last 61/2 years, Hoey said. Verizon said it has enough competition from companies such as AT&T Broadband, RCN, and other landline and wireless phone firms that the DTE can rely on market forces, rather than state sanctions, to guarantee good customer service for Verizon customers. Reilly, however, said: ”Aside from the rate increase, perhaps the most troubling aspect of the Verizon plan is its suggestion that competition take the place of service quality plans. ”With a 91 percent share of the market, Verizon clearly has the monopoly on residential phone service. At this moment, consumers have very little in the way of choice and, in many regions, are forced to buy Verizon’s services,” Reilly said. ”Certainly, service quality is a big issue for many consumers and Verizon needs to continue to be held accountable on that front.”

Hoey said the new competitive environment in local phone service provides a strong incentive for Verizon to provide high-quality service. ”We are the only competitor subject to regulatory service standards” imposed by the DTE, he said. Verizon suggested Wednesday that if the DTE does not want to eliminate the retail service penalties, it should impose new sanctions of at most 0.08 percent of revenue per month.