On the Road to More Efficient Pricing of Telecommunications Services : A Look at the Evidence

Communications Commission (“FCC”) in its CALLS Order in 2000, which reduced usage based access rates and raised caps on the Subscriber Line Charge (“SLC”), a fixed, monthly fee paid by local phone company subscribers for basic connections. At present, the Commission is evaluating additional reform of this type labeled the “America's Broadband Connectivity Plan” (the “ABC Plan”), which proposes, among other things, to cut per minute access rates to near zero ($0.0007 per minute) and raise the cap on the SLC over five-years, satisfying the National Broadband Plan's recommendation for “long-term intercarrier compensation (ICC) reform that creates a glide path to eliminate per-minute charges while providing carriers an opportunity for adequate cost recovery.” Given the movement to more efficient pricing over the past 30 years, it should be possible to evaluate the effect on consumers from such changes by looking at historical data. I do so here. Using data collected by the FCC, I study access revenues received by large, traditional telephone carriers over the period 1990 through 2007. My analysis suggests that the migration to more efficient pricing has substantially benefited consumers – the average local phone consumer pays $8 less in interstate monthly access charges today, when pricing is more efficient, than in the past when the pricing system was riddled with cross-subsidies. Moreover, for the average phone company customer, the data indicate that for every $1 reduction in carrier revenues from usage fees, revenues from SLCs increase only $0.40. Thus, the expected elimination of $2 in monthly per line usage-based access revenues is expected to increase SLC revenues only by about $0.80 on a per-line, per-month basis, well below the proposed cap increase of $3.75 per line month