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Of course, rough edges are expected in any corporate realignment involving $155 billion in assets. Most of the minor troubles will be worked out in time, but some of the problems run deeper. Executives in the regional holding companies, as well as those in the local operating companies, are wrestling with the crucial and politically delicate issue of deciding how much to charge the public for what kinds of service. Said Paul F. Levy, chairman of the Massachusetts department of public utilities: "January 1 was the operation. After that we go into intensive care."
It is a subtly sophisticated job made all the more so by the fact that rates will begin reflecting the true costs of telephone service for the first time in half a century. Until now, long-distance rates were artificially high and helped subsidize local service. Documenting the need for rate increases is a laborious, painstaking procedure requiring the talents of scores of people. But officials at the New York public service commission complain that it has been extraordinarily difficult to communicate with rate people at New York Telephone and that this has hampered the company's proposed $775 million rate increase. The commission may challenge almost all of the rate request, in part because of questions about claimed divestiture costs. William Burns, vice chairman of the regional holding company NYNEX, admits to some disorder in New York Telephone's regulatory staff, but claims that it is the commission and not the company that is confused.
If rates are not set speedily, or if they turn out to be fixed too high, large corporate phone users will be encouraged to set up their own communications systems, bypassing local phone companies and depriving them of revenues. That poses a severe threat to the typical user's phone bill. If too much revenue is lost because of defecting Big Business customers, the operating companies will be forced to raise bills to consumers. Says Levy: "Our job is to make sure that the rates we have in effect are economic, so as to minimize uneconomic bypass."
Industry analysts fear that if the operating companies cannot move deftly in some of the newer regulatory areas, they will have even more trouble when they try to adjust to direct competition, a relatively new experience. Admits Richard Santagati, who heads NYNEX's business-information-systems sales staff: "There's a steep learning curve to overcome."
The telephone companies are rying to solve their problems in part by elevating good managers and encouraging poor ones to leave. They are also quietly pressuring some executives into early retirement. But only a small number of managers have so far opted for it. Of the 110,000 people who would become part of AT&T Information Systems alone because of divestiture, only 4% have accepted retirement deals. Tradition-bound Bell will have to move fast to keep up with the increasingly competitive telecommunications industry. Says Analyst McKeever: "AT&T has to realize that they are in the real world."