DR 97-180
                               Bell Atlantic
                    Investigation into Rate Reductions
     Order NISI Approving Petition to Introduce CallAround 603 Plus as
      a New Optional Intrastate Toll Calling plan and to Restructure
                     the Existing CallAround 603 Plan
                         O R D E R   N O.  22,869
                              March 16, 1998

         On October 31, 1997, New England Telephone and
Telegraph, d/b/a/ Bell Atlantic (Company, filed a notification
detailing a proposal to reduce rates for residence, business and
carrier access customers, establish expanded local calling areas
on a "home and contiguous" basis throughout the State and
     implement a plan establishing network and Internet access for
     schools and libraries. The proposal is part of a comprehensive
     effort by the Company, as a result of Staff investigations, to
     reduce total intrastate revenues by $26 million. As a part of its
     proposal, the Company filed on February 17,1998, a petition to
     introduce CallAround 603 Plus and restructure the existing 
     CallAround 603 plan. The total amount of the reduction related to
     this portion of the proposal is $3.5 million.
         A.   Bell Atlantic
         CallAround 603 Plus (603 Plus) is a new optional
     intrastate toll calling plan for residence customers only.
     Subscribers to 603 Plus will be assessed no service establishment
     charge, pay $6.00 per month for an initial period of 1 hour and 9
     cents for each minute in excess of the initial period. In
     addition, subscribers will receive a 25% discount on customer
     dialed, in-state calling card calls and an anniversary discount
     waiving the $6.00 monthly subscriber charge for one month after
     12 full months on the 603 Plus plan. No restrictions apply to the
     anniversary discount.
         The 603 Plus plan applies to all directly dialed
     intrastate toll calls. Per second timing of calls is applied. At
     the end of the subscriber's billing period, the sum of
     accumulated seconds are rounded to the next highest minute of use
     (MOU). All residence customers currently subscribed to CallAround
     603 ("603 Plan") will automatically be subscribed to the 603 Plus
     plan upon approval. 
         Furthermore, CallAround 603 will be restructured by
     changing it from a residence and business customer plan to a
     business only customer plan. All terms and conditions remain the
         As filed, 603 Plus is limited to New Hampshire
     residences; business customers are prohibited from subscribing. 
     Limiting optional toll calling plans to a specific customer class
     departs from the Commission's decision in DR 89-010, Re NET, 76
     NHPUC 150 (1992).  In DR 89-010, Bell Atlantic's last rate design
     case, the Commission concluded there is no difference in the
     actual cost to provide residential versus non-residential toll
     services.  As a result, Bell Atlantic has extended optional
     calling plans to both customer classes. 
         Bell Atlantic argues that this holding in DR 89-010
     should not apply to 603 Plus because the Company needs additional
     marketing flexibility in the newly competitive telecommunications
     market.  Bell Atlantic contends that the same arguments the
     Company made in its Business Link filing apply equally to the 603
     Plus plan. See, Order No. 22,794 at 4,5. As Bell Atlantic argued
     in Business Link, the Company contends it is at a similar 
     competitive disadvantage in the residence toll market because
     other major toll competitors have the flexibility to "target
     market" optional calling plans to New Hampshire residence
     customers while Bell Atlantic is forced to provide optional
     calling plans to all customers.  Because it must provide optional
     calling plans to all customers, Bell Atlantic claims it will
     incur additional costs and risk greater revenue erosion than
         Pursuant to DE 90-002, Re Generic Investigation Into
     IntraLATA Toll Competition Toll Rates, 78 NHPUC 365 (1992), Bell
     Atlantic has had the authority to adjust the retail rates of
     existing services and introduce new services provided it can
     demonstrate that the average revenue per minute of use (ARPM)
     generated from such services is equal to or greater than the
     relevant price floor.  Accordingly, Bell Atlantic provided
     analyses in support of its petition.
         Bell Atlantic's ARPM calculations are based upon
     proprietary March 1997 data indicating that the ARPM of the
     proposed 603 Plus plan exceeds the relevant MTS A toll service
     price floor.  Price floor calculations are based upon the
     methodology established in DE 90-002. 78 NHPUC at 402.
     Adjustments to the price floor were made to reflect reductions in
     access rates since the conclusion of DE 90-002.  The Bell
     Atlantic analysis does not, however, anticipate stimulation in
     toll usage by residence customers subscribing to 603 Plus. The
     ARPM calculations assume the level of toll traffic will not
     change after the introduction of 603 Plus. Further, the
     calculations do not anticipate increases in residence toll demand
     as a result of eliminating daytime calling restrictions under the
     current 603 plan, nor the migration of residence customers from
     other Bell Atlantic and non-Bell Atlantic toll services. 
         B. Commission Staff
         Based on its review of the petition and supporting
     documentation, Staff recommends approval of the request to
     introduce 603 Plus, limit 603 Plus to residence customers and to
     restructure CallAround 603 from a business and residence customer
     plan to a business only plan.
         In Staff's opinion, Bell Atlantic's analysis
     demonstrates that the proposed rate exceeds the incremental cost
     of providing 603 Plus and, therefore, the service is not
     subsidized by non-competitive Bell Atlantic services.  This
     analysis also demonstrates that 603 Plus service rates are set at
     levels which yield ARPM results above the relevant price floor
     pursuant to the Commission's order in DE 90-002.
         Staff notes that although Bell Atlantic did not project
     any stimulation in toll usage, the proposed rates are structured
     in a manner that prohibits ARPM from going below the relevant
     price floor.  As stated, 603 Plus is rated at 10 cents per MOU
     assuming the subscriber utilizes the full amount of the initial 1
     hour period.  For each MOU after the initial period, subscribers
     will pay 9 cents per MOU. On average, therefore, higher volume
     subscribers pay between 9.1 cents per MOU and 10 cents per MOU
     depending on toll usage. The relevant MTS A price floor is
     currently 7.7 cents per MOU. Conversely, subscribers with toll
     usage of less than 1 hour per month will pay in excess of 10
     cents per MOU.  Thus, any increases or decreases in aggregate
     toll usage will not negatively impact the price floor test of 603
         Staff's concern with ascertaining demand levels focuses
     on anticipated revenue reductions. It is Staff's opinion that
     should demand for 603 Plus increase, then anticipated revenue
     reductions will fail to materialize as proposed price reductions
     will be offset by increased revenue associated with higher  MOU.
     Similarly, if demand for 603 Plus deteriorates, then revenue
     reductions will be greater than anticipated.
         Because Bell Atlantic could not provide Staff with up-to-date MOU data in a timely manner, Staff could only project the
     impact of changes in MOU demand as a result of this filing on BA
     revenues. In making these projections, Staff tested its own
     concerns regarding toll rate reductions, MOU demand and revenue,
     by running various scenarios using the most recent customer
     counts (a/k/a Billing Telephone Numbers's or BTN)for the existing
     603 Plan.   
         The tests indicate that rate reductions do not
     necessarily result in revenue reductions. However, because Bell
     Atlantic has lost a significant number of 603 subscribers, the
     demand for toll MOU by the remaining subscribers would have to
     increase substantially before the anticipated revenue reduction
     would be eliminated
         According to Staff, the conditions related to the
     pricing of toll services that were imposed on Bell Atlantic as a
     result of the Commission's Order in DE 90-002 have expired.
     Nevertheless, Staff believes the methodologies relied upon in
     that docket to establish ARPM and price floor calculations remain
         Although Bell Atlantic's request to limit 603 Plus to
     residence customers and restructure the current 603 plan is a
     departure from the Commission's past ruling on toll services,
     Staff supports the limitation.  It is Staff's opinion that the
     arguments proffered by the Company in its Business Link filing
     regarding the conditions of the IntraLATA business toll market
     apply equally to the residence toll market. As Staff asserted in
     the Business Link filing, the intrastate toll market is becoming
     increasingly more competitive. Thus, Staff believes approval of
     the petition will provide Bell Atlantic the opportunity to
     respond to competitive pressures and retain customers by target
     marketing high volume residence customers with a more distinct
     and competitively priced service.
         In Order No. 22,794, Staff also opined that a cost
     study in support of pricing a similar service differentially
     across customer classes was no longer necessary. In this
     particular situation, Staff does not believe that a cost study is
     necessary and that this requirement on Bell Atlantic should be
     waived. Conducting a cost study would cause unnecessary delay,
     prevent Bell Atlantic from responding to competitive pressures
     and postpone rate reductions indefinitely. Moreover, the standard
     by which the Commission now considers the prudence of tariff
     revisions is the price floor test. As discussed above, 603 Plus
     rates yield ARPM results in excess of the relevant price floor.
     Therefore, it is Staff's opinion that 603 Plus meets the
     aforementioned conditions and introduction of the service is in
     the public interest. 
         Staff notes, however, that departure from the principle
     of pricing telecommunication services on the basis of cost should
     be used with discretion.  The movement away from the cost of
     service principle in this particular case is more indicative of
     changes in the competitive conditions of the intrastate toll
     market and should not be construed as a rejection of the
     principle of basing rates on costs.
         We find the proposed changes to the tariff just,
     reasonable and in the public interest.  The analysis provided by
     Bell Atlantic demonstrates that 603 Plus service rates are
     appropriately set at levels which yield ARPM results above the
     relevant MTS A price floor.  Therefore, the service rates exceed
     the incremental cost of providing 603 Plus service and are not
     subsidized by a non-competitive service.
         Consistent with our decision in Order No. 22,794, we
     will not require Bell Atlantic to submit a cost study in support
     of pricing toll services differentially across customer classes.
     Our decision is based on Bell Atlantic's analysis indicating that
     603 Plus rates exceed incremental cost.  Similarly, we again find
     that our prohibition in DR 89-010 against differential toll
     pricing among customer classes is not appropriate in this
     particular situation.  Thus, we will depart from our previous
     ruling in DR 89-010 pertaining to the requirement of extending
     discounted calling plans to both residential and non-residential
     customers.  Our decision is based on the premise that granting
     additional marketing flexibility will provide Bell Atlantic
     adequate opportunities to respond to changes in the intrastate
     toll market.  The decision should not be interpreted as a
     rejection of cost-based principles used to develop rates for
     other telecommunications services.
         Based upon the foregoing, it is hereby 
         ORDERED NISI, that the Bell Atlantic proposed tariff
     revisions to NHPUC No. 77 consisting of:
         Part A,Section  1, Revised page 4
         Part A,Section  9, third revision of page 10
         Part A,Section 10, second revision of page 24
         Part A,Section 10, original page 38 and 39
         Part M,Section  1, second revision of page 33
         Part M,Section  1, third revision of page 35   and it
              is APPROVED
         FURTHER ORDERED, that pursuant to N.H. Admin. Rules,
     Puc 1604.03 or Puc 1605.03, the Petitioner shall cause a copy of
     this Order Nisi to be published once in a statewide newspaper of
     general circulation, such publication to be no later than March
     23, 1998 and to be documented by affidavit filed with this office
     on or before March 30, 1998; and it is
         FURTHER ORDERED, that all persons interested in
     responding to this petition be notified that they may submit
     their comments or file a written request for a hearing on this
     matter before the Commission no later than April 6, 1998; and it
         FURTHER ORDERED, that any party interested in
     responding to such comments or request for hearing shall do so no
     later than April 13, 1998; and it is
         FURTHER ORDERED, that this Order Nisi shall be
     effective April 16, 1998, unless the Commission provides
     otherwise in a supplemental order issued prior to the effective
     date; and it is
         FURTHER ORDERED, that the Petitioner shall file a
     compliance tariff with the Commission on or before April 16,
     1998, in accordance with N.H. Admin. Rules, Puc 1603.02(b).
         By order of the Public Utilities Commission of New
     Hampshire this sixteenth 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