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Answer Guy

Grass Lake, MI
reply to FFH5

Re: FCC will be correcting this abuse of rural telecom subsidy

I also know of rule that most people are not aware of in most of these contracts. However, I don't know for sure if it applies to this company or not. When a rural company surpasses a threshold of traffic on a given interconnection agreement, the company can have its contract ended. They will then have to negotiate a new contract with more reasonalbe rates or get an interconnection agreement with a new company. The traffic is measured in years, so it can take some time for the problem to be corrected.


Belvedere Tiburon, CA

Actually two stories behind this situation

There are actually two stories behind this situation.

First, yes, the '82 Divestiture Decree specified sharing of LD revenue with local companies. This was a legacy of the Bell System, which charged more for long distance (and, as well, business lines) in order to make basic residential local service cheaper and to encourage market penetration. This "promotional subsidy" aspect of cheap residential local service continued until it literally became an "entitlement" and was correspondingly formalized at divestiture. (LD revenue sharing agreement between the Bell System and the smaller "independent" companies, including GTE, were then also rolled into this system.) This system was called "access charges" for "access" to the local lines on each end of a LD phone call. It was actually an agreed part of the divestiture decree that originated with the parties--not some cockeyed scheme from Judge Greene.

Second, as a function of the (then) increasing competition for local service, over the last decade or so, the big local companies (as a part of their campaign to weaken the LD companies, which resulted in the LD companies being absorbed by the locals) pushed for, and received, much greater pricing freedom on their access charges.

(The local companies were desperate for this because the justification for access pricing--the true incremental cost of the local part of LD--was becoming so low as to be negligible, both because of technical advances and because of accounting and economic theory changes which allowed fewer "overhead" costs to be stuffed into access charges.)

In any event, the remaining independents benefited from the big local companies' (the Baby Bells') efforts to free access charge pricing and they also got access charge pricing freedom--in part because of economic theory, but in part because the FCC just didn't want to spend the time regulating the obscure charges of comparatively tiny companies. With very little control over the resulting prices, the perfect storm for pricing abuse was present--the person making the choice to use the service (the caller) had no financial stake in what the payer ultimately paid. (Same situation as traditional US health insurance, and we know where that went.)

The result was this Iowa abuse. (Yes, the "access charge system" was abused. In saying so, I fully recognize that it may have deserved to be abused, and the delicious irony of the result.)

What really blew the cork was when the LD campaign succeeded and SWB acquired ATT and VZ acquired MCI. Suddenly, the Baby Bells were paying access charges instead of just collecting them and NOW the FCC thought it was worth their attention.

I think we should take the lesson from this that cross-subsidies, no matter how well intentioned, will virtually always end up biting somebody in the behind. Using LD to subsidize basic local service as a promotional may have been a good idea--in 1927. It should have ended long ago, and the FCC is remiss (and supportive of the vertical re-monopolization of the telecom industry) by not ending it now.

VoIP--the death knell of remaining voice monopolies!