Proposed Verizon settlement is rejected by state regulators in Md.

Daily Record, The (Baltimore), Apr 7, 2009 by Danielle Ulman

State regulators Monday rejected as "fatally flawed" a settlement with Verizon Maryland Inc. that would have deregulated the telephone industry because it did not serve the public's best interest.

But instead of completely discarding the settlement, the Public Service Commission offered Verizon suggestions for revisions that would align it with public interest.

Verizon worked with PSC staff and the Office of the People's Counsel last year to come up with the terms of the settlement after regulators began investigating complaints that it took Verizon more than four days to restore telephone service to customers in 2007 and 2008.

Customers who were subject to long delays for repair service would have received $10.88 credits, and those who had missed appointments would have gotten $2.77 each, for a total of $1 million.

The settlement, which was proposed in February, would have increased monthly basic phone rates by $1 per line beginning in July and then frozen rates for three years; once the rate freeze was removed in 2012, Verizon would have capped the annual increase at $12 for residential customers and $24 for business customers.

Verizon had agreed to the caps in return for more flexibility to adjust pricing on its bundled products -- like combined local, long distance and Internet service -- that are competitive with phone- service providers that the PSC does not regulate, like Comcast.

But regulators said that adjusting prices without tying the increases to the company's service problems would not be beneficial to ratepayers. Instead, the PSC suggested that Verizon should be held accountable for its service issues with bigger financial penalties.

The commission was also concerned that the penalties expired in 2012.

"In light of Verizon's undisputed and deteriorating service quality performance, we find that the lack of any connection between future price increases and ongoing service quality performance leaves the proposed [alternative form of regulation] unable to ensure quality service and, therefore, that it fails to address the concern that prompted the Commission to reexamine the existing [alternative form of regulation] in the first place," the PSC order said.

Commissioner Allen M. Freifeld issued a separate statement disagreeing with the PSC's order. Freifeld said the settlement should be rejected, but that the commission should move forward with developing quality of service rules now instead of waiting for a revised settlement.

Freifeld also said penalties for failing to meet service regulations should correspond with the size of the failure, instead of stripping Verizon of the total rate increase.

The PSC directed Verizon to appear before it on May 5 to report on whether the parties agreed to revise the settlement to the commission's liking.