DE 97-180
                               BELL ATLANTIC
                          Rate Reduction Proposal
        Order Approving Rate Group Consolidation and EAS Expansion
                         O R D E R   N O.  22,861
                                March 9, 1998

         APPEARANCES: Victor D. Del Vecchio, Esq., for Bell
Atlantic; Devine, Millimet & Branch by Frederick J. Coolbroth,
Esq., for Granite State Telephone, et al.; James A. Sanborn for
Union Telephone Company; John Lightbody, Esq., for the TDS
Companies; William Homeyer for the Office of the Consumer
Advocate; and, Barclay Jackson, Esq., for the Staff of the New
Hampshire Public Utilities Commission.

         On October 31, 1997, New England Telephone and
     Telegraph Company d/b/a Bell Atlantic-New Hampshire (Bell
     Atlantic) filed with the New Hampshire Public Utilities
     Commission (Commission) a proposal to reduce its revenues by
     $26,120,000.  The revenue reduction proposal evolved from
     discussions with the Commission Staff (Staff) regarding Staff's
     determination that Bell Atlantic's recent financial performance
     had put the company in a position of overearning.  
         Bell Atlantic's proposal includes three components: 
     (1) various rate design adjustments to reduce rates and
     installation charges and to enhance the existing Call Around 603
     Plan; (2) consolidating the 21 existing rate groups into five
     rate groups while expanding Extended Area Service (EAS) to
     include all contiguous exchanges as part of each exchange's local
     calling area (an EAS plan often referred to as Home and
     Contiguous); and, (3) offering schools and libraries either a new
     flat-rate business line or a 56kb Frame Relay circuit with no
     installation or monthly charge until the year 2000.  The first
     and third components of the proposal are proceeding.  The second
     component of the proposal is the subject of this order.
          On January 29, 1998, pursuant to an Order of Notice
     issued on January 2, 1998, the Commission held a public hearing 
     to consider the proposed consolidation of Rate Groups and
     expansion of EAS to the Home and Contiguous plan.  At the
     hearing, the Commission granted intervenor status to Granite
     State Telephone, Inc., Merrimack County Telephone Company,
     Contoocook Valley Telephone Company, Inc., Wilton Telephone
     Company, Inc., Hollis Telephone Company, Inc., Dunbarton
     Telephone Company, Inc., Northland Telephone Company of Maine,
     Inc., Bretton Woods Telephone Company, Inc., Dixville Telephone
     Company, Sprint Communications Company, L.P., Union Telephone
     Company, Chichester Telephone Company, Kearsarge Telephone
     Company, and Meriden Telephone Company.  Sprint did not actively
     participate in this docket; the other intervenors are all
     independent telephone companies (ICOs) which are incumbent local
     exchange carriers.  The Office of the Consumer Advocate (OCA)
     appeared on behalf of residential customers as a statutorily
     mandated party.
          At the hearing, the Commission heard comments from Bell
     Atlantic, the ICOs, members of the public, the OCA and Staff.
          On February 5, 1998, Chichester Telephone Company,
     Kearsarge Telephone Company, and Meriden Telephone Company (which
     are three subsidiaries of the parent corporation TDS Telecom and
     hereinafter referred to collectively as TDS) submitted a
     Supplemental Offer of Proof regarding the effects of one-way and
     two-way EAS expansion by Bell Atlantic.  On February 9, 1998,
     Bell Atlantic objected to Commission consideration of TDS's
     Supplemental Offer of Proof. 
          EAS was introduced in the 1950's, before which only the
     home exchange was considered local and all other calls were toll
     calls.  The home exchanges dictated the engineering of the
     network of Central Offices which governs the manner in which
     telecommunications services are deployed in New Hampshire.  Over
     the next three decades, EAS grew by request to include those
     towns with which the people in the home exchange had a community
     of interest at the time of the request.  If the cost of
     increasing the number of lines a customer could reach by a local
     call was not offset by savings associated with eliminating
     long-distance operators for those calls, the cost was recovered
     by the increased rate paid by the customer as a result of being
     placed in a new rate group and, if necessary, a rate increase to
     the general body of ratepayers.  As the exchange network evolved
     to service customers more efficiently, it created the problem of
     multiple exchanges within the same town, which was ameliorated by
     the introduction of Municipal Calling Service (MCS).
          With the regulatory move toward cost-based rates,
     recovery of the costs of changes to EAS in the 1980's was
     accomplished through surcharges imposed upon the beneficiaries of
     the changes, i.e. those customers receiving increased local
     calling capabilities.  In 1994 the Commission placed a moratorium
     on EAS changes while it investigated how a statewide EAS revision
     might be accomplished.  The Commission concluded, in Order No.
     22,107, Re Preliminary Investigation into Local Calling Areas, 81
     NH PUC 288 (1996) that no statewide revision of EAS would correct
     all inequities and that the competitive forces contemplated by
     the Telecommunications Act of 1996 (the TAct) would best correct
     the situation.  
          Subsequently, by Order No. 22,204 Re Investigation into
     Extended Area Service, 81 NH 480 (1996), the Commission clarified
     Order No. 22,107 to state that it did not intend to foreclose
     consideration of individual petitions for EAS expansion.  Since
     then, the Commission has heard several such petitions, evaluating
     them pursuant to the standards enumerated in the Federal
     Communications Commission's Order on Universal Service, in CC
     Docket No. 96-45, In the Matter of Federal State Joint Board on
     Universal Service, Order No. FCC 97-157, released May 8, 1997. 
          A.  Bell Atlantic
          Bell Atlantic initially proposed to implement two-way
     EAS between all home and contiguous Bell Atlantic exchanges and
     one-way EAS between Bell Atlantic and the ICOs' exchanges. 
     However, as a result of discussions with the ICOs, Bell Atlantic
     indicated at the hearing that two-way EAS between Bell Atlantic
     and ICO exchanges would be reasonable.  Therefore, Bell Atlantic
     indicated its willingness to delay implementation of the EAS
     proposal until such time as the Commission completes the
     necessary deliberations on ICO EAS expansion.
          Bell Atlantic supported its proposal by noting the
     Commission's preference for a uniform, statewide EAS policy
     creating equitable calling areas, as discussed in Commission
     Order No. 22,107.  According to Bell Atlantic, its proposal will
     accomplish that goal while maintaining the competitive
     marketplace mandated by the TAct.  
          Because Bell Atlantic's proposal is made in response to
     Commission concerns about overearnings, Bell Atlantic will not
     raise basic rates to implement the EAS expansion.  Rates will
     change as a result of rate group changes which occur because the
     number of lines customers can reach will increase.  However,
     under Bell Atlantic's proposal, the rate group increases are
     minimized as a result of the rate group consolidation proposed in
     conjunction with the EAS proposal.  Bell Atlantic proposes to
     consolidate its existing 21 rate groups into five.  Rates for
     each of the five consolidated groups will be the lowest rate of
     the several which were consolidated into that particular rate
     group.  For example, the customers in current groups 6 through 9,
     when consolidated into new rate group 2, will all be charged the
     rate currently imposed on current group 6.   Hence, the customers
     in current groups 7 through 9 will all experience a rate
     decrease.  There will, of course, be some rate increases as a
     result of rate group changes.  For instance, a customer in
     current group 7 may, by virtue of the addition of contiguous
     exchanges, find himself moved to current rate group 11, a higher
     priced rate group. Nevertheless, under Bell Atlantic's proposal,
     no increases will occur to any exchange that does not receive an
     increased calling area.  
          In addition to the benefit to the state of uniform,
     equitable, and easily understood EAS, Bell Atlantic argues that
     the need for MCS, while still present, will be greatly
     diminished, thus decreasing the problems of incorrect billing.
          Bell Atlantic asserts that the Commission should permit
     no further expansion of EAS beyond Home and Contiguous.  The
     marketplace, according to Bell Atlantic, can provide additional
     EAS through alternate rate plans such as off-peak pricing, route
     selection, etc.; to do otherwise would remove the uniformity
     brought by this proposal.  Furthermore, Bell Atlantic argued that
     noncontiguous EAS expansion cannot be accomplished with adequate
     cost recovery because of the competitive forces now at work which
     preclude the quid pro quo trade-off of local revenues and toll
          B. ICOs   
          1.   Granite State Telephone, Inc., Contoocook Valley  Telephone 
          Company, Inc., Wilton Telephone Company, Inc., Hollis 
          Telephone Company, Inc., Dunbarton Telephone Company,
           Inc., Merrimack County Telephone Company, Northland 
          Telephone Company of Maine, Inc., Bretton Woods 
          Telephone Company, Inc., and Dixville Telephone 
          Company (collectively, the Independents)
          The Independents argue that their customers in
     exchanges contiguous to Bell Atlantic exchanges will experience
     an EAS imbalance unless the Commission authorizes an equal EAS
     expansion for territories served by carriers other than Bell
     Atlantic.  Their customers will perceive the Independents as
     providing less than adequate service.  In addition, the imbalance
     will encourage selective calling, e.g. agreements among customers
     to avoid toll charges, which will cause traffic shifts affecting
     the Independents' revenues.  Therefore, the Independents
     recommend that the Commission order statewide, two-way, Home and
     Contiguous EAS.  The rate impact on customers of the Independents
     will be different than that on Bell Atlantic customers, however, 
     because the Independents require revenue neutrality since basic
     rates must increase to cover the cost of expanding EAS without an
     overearnings situation.  The Independents request that technical
     discussions with Commission Staff proceed promptly to determine
     the necessary rate adjustments to achieve revenue neutrality. 
     Any disagreement regarding the appropriate rate adjustment, the
     Independents aver, should be brought before the Commission for
          2. Union Telephone Company (Union)
          Union does not object to Bell Atlantic's EAS expansion
     but urges the Commission to implement, concurrently, Home and
     Contiguous EAS in Union's and all ICO territories.  Union argues
     that one-way EAS into Union territory will distort traffic
     patterns and inhibit economic growth in non-Bell Atlantic
     territory.  Union will experience revenue losses from the traffic
     diversions and also from reduced interstate settlements.  Union
     also pointed out that the goal of uniform EAS cannot be met by
     implementing an EAS policy only in Bell Atlantic's territory.
          Union argued that implementation of expanded EAS in ICO
     territories need not delay implementation of Bell Atlantic's
     proposal.  Bell Atlantic must complete complex planning and
     translations before initiating the expansion.  During that time,
     according to Union, the ICOs can complete the efforts necessary
     to gain Commission approval of ICO EAS expansion.  Should ICO EAS
     expansion take more time, and thus delay implementation of Bell
     Atlantic EAS expansion, Union suggests that implementation
     proceed in piecemeal fashion, rather than as a flash-cut.  In
     that way, according to Union, the appearance of inequity will be
          3. Chichester Telephone Company, Kearsarge Telephone
   Company, Meriden Telephone Company (collectively, TDS)
          TDS requests home and contiguous EAS expansion in its
     territories concurrent with Bell Atlantic.  To that end, TDS
     agreed with the Independents and Union that technical sessions
     with the Commission Staff should commence as soon as possible to
     address the revenue issues.  In its Supplemental Offer of Proof,
     filed after the hearing, TDS provided information demonstrating
     current rates and access lines, a calculation of the additional
     cost per access line resulting from Bell Atlantic's proposal, and
     a calculation of the rate necessary for implementation of two-way
     EAS within its territories.  In particular, TDS notes that
     Meriden Telephone Company's customers will experience a
     significant rate increase.  TDS's filing suggested that one
     possibility to alleviate the revenue impact is to require Bell
     Atlantic to bear all the increased TDS costs of EAS expansion.
          C.   OCA
          The OCA took no position regarding the Bell Atlantic
          D.   Members of the Public
          Members of the public provided comments on Bell
     Atlantic's proposal, both as testimony at the hearing and as
     letters sent to the Executive Director.  Both the New Hampshire
     Business and Industry Association (BIA), a trade association, and
     the North Country Council, a regional commission for economic
     development, support the Bell Atlantic proposal.  The BIA
     recommended the proposal as a balance between the desire to
     extend local calling areas and the desire to stimulate investment
     in telecommunications infrastructure in New Hampshire.  The North
     Country Council is in favor of the proposal, in particular
     because it provides major benefits to two isolated sub-regions: 
     the Colebrook area and the Lincoln-Woodstock area.    
          E.   Commission Staff
          The Staff supports uniform two-way Home and Contiguous 
     EAS and consolidating Bell Atlantic's 21 rate groups into five. 
     However, Staff proposed that the Commission set a date certain at
     which time two-way Home and Contiguous EAS can be implemented in
     a flash-cut manner.  If any of the ICOs are not able, on the date
     certain, to implement two-way home and contiguous EAS, then Staff
     recommends that Bell Atlantic proceed, along with whichever ICOs
     are prepared.  Staff argued that such a procedure would provide
     an incentive for the ICOs to proceed quickly while not making
     Bell Atlantic's revenue reductions contingent on ICO actions.
          We have reviewed the record in this proceeding and
     considered the recommendations of all parties and Staff.  We find
     that a reduction in Bell Atlantic's revenues is reasonable and in
     the public interest.  Bell Atlantic can achieve a significant
     reduction in revenue under the proposal presented here, while
     creating equitable EAS within Bell Atlantic territory.  We
     believe that as the era of telecommunications competition further
     unfolds and choices proliferate, New Hampshire customers will
     benefit from clear, easily understood, reasonably equitable EAS. 
     Consistent with the objectives we expressed in DRM 94-001, Order
     No. 22,107, uniform, equitable EAS is in the public good where it
     can be achieved (1) without increasing monthly rates for
     customers who receive no benefit from the EAS change and (2)
     without hindering the federally mandated objective of a
     competitive telecommunications market.  Because the proposal
     meets those requirements, we will order Bell Atlantic to
     implement its proposal for Home and Contiguous EAS in accord with
     our discussion below.  
          We are not convinced by Bell Atlantic's arguments that
     no proposal for further expansion of EAS should ever be
     considered.  While we do expect the marketplace to provide
     consumers with choices, we will not foreclose the regulatory
     avenue of change at this time of transition.
          We find that consolidating Bell Atlantic's rate groups
     serves the public interest.  First, administering fewer rate
     groups is more efficient for Bell Atlantic.  Second, rate groups
     with a larger population range means that customers will be
     shifted from one rate group to another less frequently and
     therefore experience fewer rate changes.  Third, consolidating
     the rate groups' rates downward to the lowest rate within the new
     group, as proposed, will reduce the rates of the largest number
     of customers.  
          Given the testimony in support of two-way Home and
     Contiguous EAS by the Independents, Union, TDS, the members of
     the public, and Staff, as well as our prior investigations in DRM
     94-001, we will also order the ICOs to proceed with the studies
     necessary to implement statewide, two-way Home and Contiguous EAS
     as soon as possible.  We direct the ICOs to hold technical
     discussions with Staff regarding rate impacts and with Bell
     Atlantic regarding EAS implementation before submitting
     proposals.  Thereafter, the Commission will hold hearings to
     review the rate impacts of the proposals concerning two-way Home
     and Contiguous EAS in the ICO territories.
          With regard to rate impacts, we make no judgment at
     this time as to how revenue neutrality will be achieved for the
     ICOs.  TDS's proposal that Bell Atlantic absorb all of an ICO's
     costs of implementing two-way Home and Contiguous EAS is
     unacceptable.  Bell Atlantic is neither the causative agent nor
     the beneficiary of an ICO's implementation of EAS expansion.  
     Rate impact and recovery issues will be decided individually for
     each carrier and we will consider all factors when making a
     decision, including possible overearnings.  Furthermore, we
     recognize that factors of which we are currently unaware may
     appear in the course of the technical discussions with ICOs,
     which may bring into question whether any particular carrier,
     other than Dixville Telephone Company, should be exempt from the
     two-way Home and Contiguous EAS requirement.       
          We prefer a single date for implementing statewide
     two-way EAS over a piecemeal, multi-date implementation.  The
     single date, flash-cut change would insure a unified approach to
     educating customers about the change, resulting in the least
     confusion.  We utilized this approach effectively when
     implementing intraLATA presubscription.  At the time of the
     hearing, however, Bell Atlantic was unable to declare a definite
     date upon which it will be capable of technically implementing
     Home and Contiguous EAS.  As a result, we will reserve our
     judgement as to whether a flash-cut implementation is possible
     until after we hear from Bell Atlantic regarding a proposed
     implementation date and after the necessary technical discussions
     have occurred.  At that time we can weigh the benefits of a
     flash-cut implementation against the benefits of reducing Bell
     Atlantic's revenues as soon as possible.  
          We note that the revenue reductions actually obtained
     from effecting Bell Atlantic's proposal may not take Bell
     Atlantic out of an overearnings situation.  We will monitor Bell
     Atlantic's earnings and, should the overearnings continue, we
     will investigate and order further reductions as necessary.
          Based upon the foregoing, it is hereby
          ORDERED, that two-way Home and Contiguous EAS shall be
     implemented in Bell Atlantic's territory; and it is
          FURTHER ORDERED, that Bell Atlantic's current rate
     groups shall be consolidated into the five rate groups proposed;
     and it is
          FURTHER ORDERED, that Bell Atlantic, no later than
     March 20, 1998, shall inform the Commission of the earliest date
     by which conversion to two-way Home and Contiguous EAS can be
     implemented throughout Bell Atlantic territory; and it is
          FURTHER ORDERED, that the ICOs, Staff, and the OCA
     shall hold technical discussions regarding the appropriate rate
     changes necessary, if any, to implement two-way Home and
     Contiguous EAS within the ICO territories; and it is
          FURTHER ORDERED, that an additional hearing shall be
     held to review the rate impacts proposed to implement two-way
     Home and Contiguous EAS in the ICO territories.
          By order of the Public Utilities Commission of New
     Hampshire this ninth day of March, 1998.
        Douglas L. Patch    Bruce B. Ellsworth        Susan S. Geiger
            Chairman           Commissioner            Commissioner
     Attested by:
     Thomas B. Getz
     Executive Director and Secretary