Rural customers pay more for telecom services

A study released today by the National Exchange Carrier Association concluded that rural customers pay more for telecommunications services than customers in non-rural areas, and that FCC policies largely are to blame.

The study indicated that residential subscriber rates for basic local service increased by 36% over the past eight years, from $20.59 per month in 1994 to $28.08 per month in 2002, due to state and federal end-user charges. These include federally mandated subscriber line charges of about $2.50 per month, plus surcharges associated with local number portability, universal service, E-911 and lifeline programs.

“The FCC’s rules have begun to transfer the recovery of costs away from usage-sensitive rates, that are typically paid for by long-distance carriers, to end-user rates,” said NECA President Bob Anderson today in a press conference to release the study results.

The problem with that shift, according to the study, is that rural customers are less equipped to absorb rate increases. For starters, rural markets are heavily residential, and business customers typically are better suited to absorb rate increases. In addition, the median household income in rural areas is $40,600, compared with $46,600 in non-rural households, said the study. Moreover, rural households had an average net worth of $40,500 compared with $61,000 for non-rural households.

If that wasn’t enough, rural customers are paying considerably more for long-distance services. Just 57% of rural customers have access to long-distance discount plans. While the average rate for long-distance service was 9 cents per minute in 2000 according to the FCC, the NECA study indicated that “many rural customers” pay rates ranging from 18.5 cents per minute to 35 cents per minute.

“Rural customers make a lot of long-distance calls, and not having access to these discount plans is a burden,” said Victor Glass, NECA’s director of demand forecasting and rate development.

The NECA study also raised questions concerning the sustainability of the universal service fund (USF). Given current regulatory policies and an expected increase in the number of wireless and competitive carriers that become eligible to receive funds, NECA projected that the fund could grow to $7.1 billion by 2006. In contrast, fund size was $5.2 billion in 2001 and $55.6 million in 1986.

“The fund has been increasing tremendously as it has broadened in scope, yet at the same time, the fund’s revenue base is declining,” said Glass.

That’s primarily because long-distance revenues have shrunk significantly as carriers have drastically reduced rates to stay competitive in a crammed marketplace and because they have lost many customers to wireless substitution. The result is that the interstate retail revenue base has declined 12% since 1998.

The fund that was designed to keep local rates affordable is under pressure,” said Glass. “And if the fund is not sustainable, they’ll pick up a lot more of that tab.”

Currently, rural carriers receive on average $9.11 per line per month from the fund.