July 1, 2001
L.A. Loves a Loophole
There's no getting around it...
Preserving Local Telephone Service in High-cost Areas
Legislators and regulators must recognize that rural America is different.
The costs of providing telephone service to rural America are much higher than for more urban areas of the country. By definition, small rural subscribers are scattered throughout large geographic areas. In rural areas, the average number of subscribers per route mile runs about 6.3; the average number of subscribers per square mile is 4.4. These figures differ dramatically from those of the Bell operating companies (BOCs), which show an average density of 130 subscribers per route mile and more than 33 per square mile. Small rural local exchange carriers (LECs) also report a higher proportion of residential versus business subscribers; they face higher unit costs for usage-sensitive equipment because they cannot take advantage of economies of scale; and have higher loop-related costs because their local loops are longer and their service areas more remote.
At the Organization for the Protection and Advancement of Small Telephone Companies (OPASTCO), we are concerned that the telecommunications bills before Congress and the regulatory reforms under consideration at the Federal Communications Commission (FCC) could impose a severe and detrimental impact on the availability and price of basic local telephone service and long-distance service for rural Americans. At the heart is the concept of universal service and its accompanying support mechanisms.
In response to these concerns, OPASTCO has attempted to identify and quantify the financial and social impacts on rural America should the actions of the FCC and Congress ultimately eliminate or scale down today's support mechanisms and force a fundamental change in the concepts of universal service. These traditional support mechanisms and concepts include the geographic averaging of interstate and intrastate toll rates; long term support; the Universal Service Fund (USF); dial-equipment-minute (DEM) weighting; the 25-percent gross allocator; and the "Lifeline" and "Link-Up America" programs. Using the results of a nationwide survey, OPASTCO has quantified some of these impacts.
We estimate the total annual cost at approximately $1.05 billion if we were to lose today's support mechanisms and the deaveraging of interstate and intrastate toll rates for the 2.8 million access lines in the OPASTCO study group. In addition, those subscribers could expect an average increase to their telephone bills (em including both local and toll service (em of $31.27 per month, or approximately $375 annually. If such toll deaveraging is allowed to occur, toll rates for subscribers in rural America will climb while toll rates will fall for more urban areas, creating a greater disparity.
Several survey questions asked rural subscribers how they would react to increases of $5, $10, $15, and $25 in monthly local and toll bills. Some 44.7 percent of survey respondents said they would disconnect service if faced with a $25 increase in their monthly basic local service costs. After comparing the subscriber survey and the LEC data, the results indicated that approximately 573,000 (em or 20.4 percent of the 2.8 million subscribers of the study group LECs (em would disconnect their telephone service.
While residential customers at small rural LECs may enjoy lower local service bills, they also face higher