Federal Subscriber Line Charge

&

Universal Service Reform

 

The Federal Communications Commission (FCC) recently issued a decision affecting residential and business customers of Home Telephone and other independent telecom companies.  Effective January 1, 2002, federal subscriber line charges (SLCs) for customers of Home Telephone will increase from $3.50 to $5.00 per month for residential and single-line business customers and from $6.00 to $9.20 per line, per month for multi-line business customers.

The costs incurred by local telecom companies to construct and maintain local telephone networks are, especially in rural areas, greater than the amount they can charge customers for access to the network.  Historically, long distance carriers were responsible for paying access charges to local telecom companies in order to help these companies recover some of these costs.  However, in order to promote competition in long distance services, the FCC adopted a plan to reduce the access charges that long distance carriers pay.  Therefore, the FCC established the federal SLC.  The federal SLC is a flat monthly charge assessed directly to residential and business customers to help local telecom companies recover some of the costs they incur in constructing and maintaining local telephone networks.  The FCC has capped SLC charges in order to insure the affordability of access to the local telephone network.

 

Prior to the FCC’s most recent order, customers served by rural, independent companies were assessed lower SLC rates than those of large, urban carriers, such as BellSouth.  However, in January of 2002, the FCC’s order will bring the SLC charges for rural, independent companies, such as Home Telephone, up to the amount already charged by large, urban companies.

 

Frequently Asked Questions

Q.              What is the federal subscriber line charge (SLC)?

 

A.               The FCC requires that local telecom companies recover some of the costs of the facilities they use to connect your home or business for telecom services through a flat, monthly charge assessed on the bills of all residential and business customers.  Commonly referred to as the “subscriber line charge” (SLC) or the “federal subscriber line charge,” this charge is part of the FCC’s ongoing effort to promote competition in the U.S. telecommunications industry. 

 

The FCC designed the federal SLC as a way to reduce access charges paid by long distance companies but still compensate local telecom companies for the use of their networks to provide access to their customers.  The FCC’s intent is to target customers more directly for these costs. 

 

Q.        How much is the federal SLC increasing?

 

A.         Before the FCC’s recent decision to raise the subscriber line charge, independent telecom providers, like Home Telephone, had not charged more than $3.50 for residential and single-line businesses, or $6.00 per line for multi-line businesses.  The FCC-ordered increase, however, means that effective January 1, 2002, the residential and single-line business charge will increase to $5.00 per month, and the multi-line business charge will increase to $9.20 per line per month.

 

Q.        Why has the FCC ordered the increase in the SLC?

 

A.         As part of its continuing effort to promote competition in long distance services and shift cost to local customers, the FCC is reviewing the rules and regulations that govern the telecom business and seeking to rebalance the system of rates and charges.  In July 2000, the SLC rate rose from $3.50 to $4.25.  Then in July 2001, the FCC capped the SLC for large local companies at $5.00 for residential and single-line business customers and $9.20 per line for multi-line business customers.  By expanding the higher SLC caps to all local companies, the FCC has reasoned that rural customers should pay the same levels of subscriber line charges as urban customers. 

 

Q.        Why do local companies charge long distance companies any fee, don’t customers already pay for local service?

 

A.         Based on recent studies, it costs, on average, over $45 per month per line to serve Home Telephone customers.  For almost a century long distance rates have been used to hold down rates for basic local service.  Long distance companies pay this support in the form of charges for use of the local network to originate or terminate calls.

 

Q.        What is the Federal Universal Service Charge (FUSC)?

 

A.        Your monthly bill from Home Telephone also includes the “Federal Universal Service Charge” (FUSC).  This charge is not part of the local rate; this charge, also set by the FCC, helps to keep telecom rates affordable for all Americans, regardless of where they live.

 

The federal government has established national programs to support universal telephone service.  The Federal Universal Service Fund assists with the costs of providing affordable telecommunications service to low-income individuals and to customers in rural, high-cost areas.  In addition, Congress has expanded the program to help schools, libraries, and rural health care providers obtain leading-edge services, such as Internet connections and high-speed access.  All providers of telecommunications services contribute to the support of these universal service programs.  The Federal Universal Service Charge may also increase as a result of the FCC’s effort to rebalance rates. 

 

Q.        What is universal service, and what does it mean to customers of Home Telephone?

 

A.         In 1934, the nation made a commitment to make telephone service available to as many Americans as possible—rich or poor, rural or urban.  Therefore, Congress passed the Communications Act and created the concept of universal service.  The universal service principle promotes the development and reach of the national telephone network by sharing costs across groups of services and users in order to connect all segments of the American public. 

 

Universal service recognizes that the costs of providing telephone service to all parts of the country vary according to population density and area.  However, it also recognizes that the nation as a whole benefits from a network that connects all Americans.  We can look at universal service as a system by which everyone benefits from the fact that everyone else has a telephone.  Thanks to universal service, independent companies in high-cost rural areas have been assured of appropriate recognition of their business costs, and all Americans have been assured of quality telephone service at reasonable rates, no matter where they live. 

 

Q.        How does the universal service support system work?

 

A.         Long distance carriers pay access charges to local telecom companies for access to the local network to enable customers to make or receive long distance calls.  These access charges reflect a legitimate business cost, compensating local companies for long distance carriers’ use of their networks.  The access charge system works together with the federal universal service program to ensure that all Americans have access to comparable service at affordable rates.

 

Universal service support and access charge revenues are essential to independent telecom providers.  These programs generate revenue that help local companies serving rural areas keep local rates affordable and comparable to rates in urban areas where the population is more densely clustered and costs are not as high.  Many independent companies depend on these access charges and universal service support for more than half of their revenues.  These companies continue to rely on this support today, given the costs of the equipment and facilities necessary to make state-of-the-art service available to rural customers.

 

Q.        Where do the federal SLC and FUSC fees go?

 

A.         Both the SLC and FUSC fees collected from customers by Home Telephone go to federal administrative agencies created by the FCC, known as the National Exchange Carrier Association, to oversee and manage the funds.  The funds are then re-distributed to local companies based on their specific costs.  This enables independent companies and cooperatives serving high-cost rural areas to recover some of the costs of the facilities they use to connect homes or businesses for service.

 

Q.        What about the state USF charge?

 

A.         In addition to the federal universal service programs, Home Telephone and other telecom providers in South Carolina collect fees for the South Carolina Universal Service Fund that is administered by the South Carolina Public Service Commission in Columbia.  The South Carolina Universal Service Charge supports universal service programs within the state.  All telecom providers in the state must contribute to the support of universal service in South Carolina to help keep basic local rates affordable for everyone in the state.  As with the federal universal service support program, the South Carolina Universal Service Fund is distributed to individual telecom providers based on the costs they incur in serving their particular areas. 

 

Q.        Do all local telephone companies receive universal service support?

 

A.         No, not all local companies qualify.  While all telecom providers contribute to the support of universal service, companies that serve large, urban markets where costs are not as high as in rural areas are not likely to qualify for universal service support.  Companies that serve Charleston or Columbia, for example, usually do not qualify for federal or state universal service support.  Thus, large, urban-based companies are helping, through their contributions to the Federal Universal Service Fund, to keep local rates comparable and affordable for customers of rural, independent companies.  This mutual social benefit is the very objective that the universal service system was created to achieve.  However, telecom providers can (and most do) recover these contributions through the Federal Universal Support customer charge.

 

Q.        How did USF support work in the past?

 

A.        Prior to the breakup of AT&T in 1984, local and long distance service was provided by the same company.  Since the same company was providing both services, federal and state regulations required the companies to keep long distance rates high and use those revenues to help hold down local rates.  In addition, these same regulators required business customers to pay higher rates than residential customers and required that most optional calling features, such as call waiting and caller ID, be priced high enough to also help keep local rates low.  This plan worked well when one company was providing all the services.  However, when long distance was separated from local service in l984, the FCC created the concept of access charges to be applied to long distance companies.  These access charges were to both cover the cost of using the local phone company’s network and to continue providing revenue support to keep local rates affordable.  This allowed the system of shifting cost between various types of services to continue.  This system allowed the United States to build the largest phone network in the world with around 95% of households connected.  This was achieved without the need for state or federal taxes.  Instead, the support needed to keep local rates affordable came from within the telephone network, also known as implicit support.

 

Q.        If the old system worked so well, why change it?

 

A.         The push to make telecommunication services competitive and changes in technology are making the old method of keeping local rates affordable impossible to maintain.  When customers can choose between various companies, they will choose the company that offers the lowest rates for the type of service they want.  Any new companies who want to provide this service will not have built the large networks necessary to service all customers.  They will simply serve the most densely populated area of customers in order to keep their costs low.  If a local telephone company loses support from these customers, it would be forced to raise rates on local service.  Thus, when customers can choose between many phone companies, the price of services must reflect the cost.  This means rates will be much higher than when implicit support was available.  In addition, technology changes such as wireless telephones and Internet services which are not regulated like telephone companies are providing services that traditionally were provided by the local phone company.  Again, these companies are primarily taking the services, such as long distance, which have helped keep local rates low, away for the local phone company.

 

Q.        How can customers continue to enjoy low local rates in a competitive market?

 

A.         The 1996 Federal Telecommunications Act mandated all universal service support should be continued.  It also required that customers in rural areas be able to receive the same services at comparable rates as those offered to customers in urban areas.  The way this is being done is through the creation of both federal and state universal service funds.  The idea behind those funds is to create a pot of money, collected from all customers.  These funds can then be distributed to rural and high cost companies to replace the old implicit support that was previously received from long distance access charges and other rates.

 

News Release appearing in The Monitor

 

January 2, 2002

 

FCC Orders Increase in Federal Subscriber Line Charges

[Berkeley County, SC]—In one of many recent actions affecting customers of Home Telephone and other independent local telecom companies, the Federal Communications Commission has raised the federal subscriber line charge for residential and business customers.

 

The costs incurred by local telecom companies to construct and maintain local telephone networks are, especially in rural areas like Berkeley County, greater than the amount they can charge customers for local service.  Historically, long distance carriers were responsible for paying access charges to local telecoms to keep local telephone rates well below the actual cost of providing service to these rural areas.  However, in order to spur competition in long distance services, the FCC adopted a plan to reduce the amount of access charges long distance companies were required to pay.  The federal SLC was established as a flat monthly charge designed to shift some of the costs paid by long distance carriers back to local telecom customers.  The FCC has capped SLC rates since their inception due to customer affordability concerns.

 

Prior to the FCC’s most recent order, customers served by rural, independent companies were assessed lower SLC rates than those of large, urban carriers, such as BellSouth.  In other words, many customers in larger, urban areas have already been paying higher SLC rates.  However, the FCC has now reasoned that rural customers, who generally cost more to serve than customers in urban areas, should pay the same rates as urban customers.  Therefore, effective January 1, 2002, the federal SLC for customers of rural independent companies, such as Home Telephone, will be $5.00 per month for residential and single-line business customers and $9.20 per line per month for multi-line business customers.  If you have any questions regarding the SLC or other charges that appear on your bill please visit www.hometelco.com and click on the “Telephone” link.

-END-