The rise in residential telephone rates as an outgrowth of the telecommunications act has caught lawmakers off guard and could prompt efforts to consider corrective legislation.

The bill, which received bipartisan support when it passed Congress in 1996, was intended to spur competition in the communications industry and, at least in theory, foster lower rates. But the loss of various subsidies, coupled with a race to provide cheaper service to business customers, has led to higher residential costs.Rep. Rob Portman, R-Ohio, for one, has expressed disappointment with the results. ''They touted it as being good for local and long-distance rates and, thus far at least, it hasn't resulted in what was hoped for.''

Cincinnati Bell Telephone Co. has a case pending before the Public Utilities Commission of Ohio that would increase residential rates by 14 percent while reducing business rates by 14 percent. The change is needed, company officials contend, so it can compete with other firms entering the market and targeting business clients.

BellSouth Corp. is taking a similar tack, and the government reported increases in local phone rates and in-state toll call rates around the country last year.

Few residential users can pick and choose between local phone companies despite the original promise of the legislation. And some are wondering, under the current climate, if it will occur.

Sen. John McCain, R-Ariz., chairman of the Senate Commerce Committee, which maintains oversight of the telecommunications act, is working on legislation he hopes will ease the squeeze.

''In my judgment there's a lot that needs changing,'' Mr. McCain said. The act's major problem is that regulation just isn't in sync with reality, he said, so industries chafe and sue, competition is stalled and consumers don't get the lower rates and better services they were promised.

Mr. McCain, who opposed the legislation two years ago, said Congress didn't understand the incredible complexities of the industry and relied too much on arguments made by various industry players.

''And guess what?'' Mr. McCain said. ''The industry, in lobbying Congress, understandably placed its own interests first with consumer interests playing a supporting role.'' When industry interests inevitably collided in implementing the act, the gap between what was being promised and what was achieved became huge, he added.

The key problem involves subsidies. Traditionally, it cost phone companies more to provide local phone service to residential customers than what they charged. The providers made up the deficit by charging more to business customers and through unseen fees like access charges - the amount local companies assessed on long-distance carriers like AT&T to complete their calls.

Access charges have been set above cost. Like the inflated assessments for features such as call waiting, caller identification and voice mail, the extra money is used to subsidize local service.

In some cases these subsidies will be abandoned. In others, fees will have to be reduced in face of competition. At any rate, the result is higher local costs.

Rep. Steve Chabot, R-Ohio, a supporter of the legislation, expressed confidence that the telecommunications act will ''increase competition, give consumers more choices, ultimately lower rates over time and improve service.''

Given that these monopolies were built up over a long period of time, it will take a while for them to be dismantled and increase the competition, he added.

In some instances, like the case cited by Cincinnati Bell, competitors are looking to move into the market and pluck off business customers paying artificially high rates.

''Since they're higher, businesses want to come in and compete where there are more profits to be made,'' Mr. Chabot said. ''I would like to keep residential rates down as much as possible, and I think we'll eventually see that through competition.''

Mr. Chabot also said the Federal Communications Commission has been unable, maybe unwilling, to handle the situation. It's likely that will lead to congressional oversight hearings this year with the potential for corrective legislation.

Sen. Mike DeWine, R-Ohio, chairman of the Senate Subcommittee on Antitrust, Business Rights and Competition, a panel currently up to its knees in problems over cable television deregulation, maintains that it is still too early to assess the impact of the telecommunications bill, although he intends to keep an eye on the issue as the year progresses.

''He has a telephone bill himself, you know,'' said spokesman Charles Boesel. ''He knows it needs to be closely monitored, and, with the subcommittee, he can call people and have them explain to us why this is happening. It's still too early to overhaul the whole thing, but it's of a concern.''

Mr. Portman is particularly interested in determining ''why what we were told was going to happen hasn't happened.''

''Most of us who really aren't involved in the issue just kind of listened to all the projections and believed them,'' he said. ''This is not what I expected and I'm disappointed.''

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