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Federal Communications Commission
1919 - M Street, N.W.
Washington, D.C. 20554
News media information 202 / 418-0500
Fax-On-Demand 202 / 418-2830
Internet: http://www.fcc.gov

This is an unofficial announcement of Commission action. Release of the full text of a Commission order constitutes official action. See MCI v. FCC. 515 F 2d 385 (D.C. Circ 1974).

Report No. CC 97-23 COMMON CARRIER ACTION May 7, 1997


(CC Docket No. 94-1)

(CC DOCKET NOS. 96-262; 94-1; 91-213; 95-72)

The Commission today adopted changes to its system of interstate access charges to make them compatible with the pro-competitive deregulatory framework established by the Telecommunications Act of 1996.

This access charge reform Order, which applies to the nation's largest telephone companies, will foster competition and economic growth by creating an access charge system that is economically efficient, fair, and compatible with competition. As a result of this Order and the companion price cap reform Order, consumers will enjoy lower interstate long distance rates, which should cause long distance calling to increase.

The reforms to the FCC's existing access charge scheme, including the changes to the price cap rules adopted today, form the third in a trilogy of actions that collectively are intended to foster and accelerate the introduction of competition in all telecommunications markets, pursuant to the mandate of the 1996 Act. In August 1996, the Commission adopted policies to implement the local competition provisions of the Act.

Today, in a companion universal service Order and in its access reform order, the Commission reformed the existing system of universal service so that universal service is preserved and advanced in a manner that permits local telephone markets to move from monopoly to competition, and that meets the Act's requirement that federal universal service support be made explicit, to the extent technically feasible.

The Commission's access reform Order adopts various reforms to the existing rate structure for interstate access that are designed to move access charges, over time, to more economically efficient levels and rate structures. In particular, the Commission adopted changes to its rate structures for Common Line and Local Switching rate elements. The Commission generally removed from minute-of-use access charges costs that are not incurred on a per-minute-of-use basis. The Commission concluded that these non-traffic sensitive costs that do not vary with the level of interstate usage should generally be recovered through flat-rated charges.

The Commission also adopted changes to its rate structure for interstate transport services. The reforms are designed to move the charges for those services to more cost-based levels and to promote competition for interstate transport services.

In addition, the Order affirms the tentative conclusion reached in the Notice of Proposed Rulemaking that incumbent LECs may not assess interstate access charges on information service providers (ISPs). The Commission found that its existing policy promotes the development of the information services industry, advances the goals of the 1996 Act, and creates significant benefits for the economy and the American people. The Commission said it will address fundamental questions about ISP usage of the public switched network as part of a broader set of issues under review in a related Notice of Inquiry.

With respect to access charge rate levels, the Commission rejected proposals immediately to reinitialize all interstate access rates to levels based on Total Service Long Run Incremental Cost (TSLRIC). The Commission instead stated that it would rely on marketplace forces in the first instance to drive interstate access prices to levels that would be achieved through competition. The Commission stated that it will, in a subsequent Report and Order to be issued in early summer, provide detailed rules for implementing the market-based approach adopted in today's access reform item. That process will give carriers progressively greater flexibility in setting rates as competition develops, gradually replacing regulation with competition as the primary means of setting prices and facilitating investment decisions. The Commission also, however, adopted a prescriptive safeguard to bring access rates to competitive levels even in the absence of competition. For all services then still subject to price caps and not deregulated in response to competition, the Commission required incumbent LECs subject to price caps to file TSLRIC studies no later than February 8, 2001.

The Commission also stated that it would address in a subsequent order "historical cost" recovery issues: whether and to what extent carriers should receive compensation for the recovery of the allocated costs of past investments if competitive market conditions prevent them from recovering such costs in their charges for interstate access services.

Action by the Commission May 7, 1997 by First Report and Order (FCC 97-158). Chairman Hundt, Commissioners Quello, Ness and Chong, with all four issuing separate statements.

- FCC -

News Media contact: Rochelle Cohen at 418-0253 or Jodie Buenning at 418-7272.
Common Carrier Bureau contact: Jane Jackson or Rich Lerner at 418-1520.



New Access Rate Structure

Common Line


For the primary residential line and for single-line business customers, the SLC ceiling remains at one-twelfth of annual common line revenues permitted under our price cap rules divided by total access lines or $3.50 per month, whichever is less.

For second and additional residential lines, in 1998 the SLC ceiling is one-twelfth of annual common line revenues permitted under our price cap rules divided by total access lines or $5.00 per month, whichever is less. In 1999, the SLC ceiling for these additional residential lines will be one-twelfth of annual common line revenues permitted under our price cap rules divided by total access lines or $6.00 per month (adjusted for inflation), whichever is less. Under the Commission's plan, the same adjustment to the SLC ceiling for these additional residential lines is made each year, but the maximum ceiling is $9.00 per month, adjusted for inflation. After the phase-in is completed, the average SLC for these lines of incumbent price cap LECs is expected to be less than $7.60.

The SLC ceiling for multi-line business customers will increase in July 1997 from $6.00 to one-twelfth of annual common line costs allocated to the interstate jurisdiction divided by total access lines in 1998 or $9.00 per month (adjusted for inflation in subsequent years), whichever is less. The SLCs for multiline business customers of certain incumbent price cap LECs will not change in July because their current SLCs are below the existing ceilings. If no common line revenues are recovered through multi-line PICCs, as described below, the SLC ceiling for multi-line business customers shall be one-twelfth of annual common line revenues permitted under our price cap rules divided by total access lines or $9.00 (adjusted for inflation in subsequent years), whichever is less. In 1998, the average SLC for the multi-line business lines of incumbent price cap LECs is estimated to be approximately $7.61 per month.

End user charges assessed to customers of additional residential lines and multi-business lines will also recover certain expenses that LECs incur in marketing retail services.

Presubscribed Interexchange Carrier Charge (PICC)

The PICC is a flat-rated, per-line charge that is recovered from interexchange carriers (IXCs) and is designed to recover common line revenues not recovered through SLCs.

In the future, this charge may also recover a portion of costs currently collected through the per-minute Transport Interconnection Charge (TIC).

In 1998, the ceiling on the PICC associated with primary residential and single line business lines is one-twelfth the annual common line revenues permitted under our price cap rules divided by total access lines minus $3.50 and any applicable universal support payments received by the incumbent LEC, or $.53 per month, whichever is less. IXCs currently pay a per-line charge of $.53 to contribute to existing universal high cost and low-income support programs and this amount will thus remain unchanged. In 1999 and subsequent years, the monthly PICC ceiling shall be adjusted for inflation and increased by an additional $.50. The monthly PICC ceiling may never exceed the sum of one-twelfth of the annual permitted common lines revenues and residual TIC revenues divided by total access lines, minus $3.50 and all universal service support received by the incumbent LEC for such lines.

Effective January 1, 1998, the PICC for second and additional residential lines will be one twelfth of the annual common line revenues permitted to be recovered under our price cap rules minus the annual common line revenues permitted to be recovered through all SLCs and the PICC assessed on primary residential and single-line business lines, divided by the number of second and additional residential lines and multi-line business lines, or $1.50 per month, whichever is less.

In 1999, the monthly ceiling on the PICC for second and additional residential lines shall be adjusted for inflation and increased by an additional $1.00. In each subsequent year, the monthly ceiling shall be adjusted for inflation and again increased by $1.00.

The actual PICC for second and additional residential lines paid by IXCs will decrease over time, as the ceilings on the PICC for primary residential and single-line business lines gradually increase. It is estimated that the average second residential line PICC will never exceed $2.00, and that this average will decline from 1999 onwards. Decreases are expected to begin for some incumbent price cap LECs in 1999 and for all LECs no later than 2001. Eventually, the PICC for second and additional residential lines will be one-twelfth of the annual common line and residual TIC revenues permitted under our price cap rules divided by total access lines, minus the ceiling on the SLC for those lines, plus certain expenses that LECs incur in marketing their retail services.

In 1998, the PICC for multi-line business lines is one twelfth of the annual common line revenues permitted under our price cap rules minus the annual common line revenues permitted to be recovered through all SLCs and the PICC assessed on all residential and single-line business lines, divided by the number of multi-line business lines, or $2.75, whichever is less.

In 1999 and 2000, the PICC ceiling shall be adjusted annually for inflation and, if necessary for certain carriers, increased by an additional $1.50 on average; however, it is estimated that MLB PICCs will decline every year and the average will dip below $1.00 in 2001.

Per-minute CCL charge

As the ceilings on the PICCs increase, the per-minute CCL charge will be eliminated. Until then, the per-minute CCL charge shall be assessed on originating minutes and shall not exceed annual common line revenues permitted under our price cap rules less the common line revenues that incumbent LECs are permitted to recover from SLCs and PICCs, divided by forecasted interstate access minutes (originating). To the extent that the sum of a LEC's per-minute local switching charge and any residual per-minute CCL, TIC, and marketing expense charges exceeds the sum of its local switching, CCL, and TIC charges on originating access on December 31, 1997, the excess shall be collected through a per-minute charge on terminating access. This circumstance is expected to affect only a few price cap LECs and none beyond 1998. As a result of these policies, the average price cap LEC will have to charge lower rates for terminating than originating access. Originating access charges are more likely to be subject to competition than terminating access.


Effective January 1, 1998, price cap LECs are to move the non-traffic-sensitive (NTS) costs of local switching associated with line ports to common line and recover them through the common line charges discussed above. Price cap LECs may also assess a monthly flat-rated charge directly on end users that are subscribing to ISDN, digital subscriber line or other services that have higher line port costs than basic, analog service. This charge will recover the amount by which the cost of the line port exceeds the cost of a line port for basic, analog service.

Also effective January 1, 1998, price cap LECs are to move the NTS costs of local switching attributable to dedicated trunk ports to the trunking basket and recover them through flat-rated monthly charges collected from the user of the trunk port. The NTS costs attributable to shared trunk ports continue to be recovered through per-minute local switching charges. In addition, price cap LECs may, but are not required to, recover some of their local switching revenue through a call set-up charge that is assessed on a per call basis.


Effective July 1, 1998, the unitary rate structure option for tandem-switched transport is eliminated and the costs of tandem-switched transmission shall be recovered through the existing three-part rate structure.

For price cap LECs, a number of changes are to take place effective January 1, 1998. The NTS costs of tandem switching attributable to dedicated ports are to be recovered through a new flat-rated monthly charge. The costs of multiplexers used between tandem switch DS-1 port interfaces and the DS-3 circuits used to transport traffic from tandem to end offices are to be recovered through a new per-minute rate element. Finally, the assumption employed in the current tandem-switched transport rate structure that a tandem-switched transport circuit carries 9000 minutes of use per month will be eliminated and price cap LECs shall use the actual level of traffic carried over those circuits in the previous year to determine their tandem-switched transport rate.

Effective January 1, 1998, certain costs currently recovered through the TIC are reassigned to specified facilities charges. The reassignment of tandem costs currently recovered through the TIC to tandem switching shall be phased in evenly over three years -- on January 1, 1998, January 1, 1999, and January 1, 2000.

Those costs remaining in the TIC (the "residual TIC") are recovered in part through the PICC. Residual TIC charges are not recovered from CAPs that interconnect their interstate transport facilities with incumbent LECs' networks at the end office. Over the next few years, a larger percentage of the residual TIC will be recovered through PICCs. Simultaneously, price cap reductions will be targeted to the per-minute residual TIC until it is eliminated. The per-minute residual TIC is expected to be eliminated within two to three years under this plan.

SS7 Signalling

Price cap LECs shall, but are not required to, adopt a rate structure for SS7 signalling that Ameritech has been permitted to use, pursuant to a waiver order.

Other Actions Taken

Equal Access Costs.

Price cap LECs shall reduce their access charges to reflect the completion of the amortization of equal access non-capitalized costs.

Marketing Expense.

Price cap LECs may recover certain Account 6610 marketing expenses through a flat monthly charge assessed directly on multi-line business lines and non-primary residential lines. This charge, when added to the SLC, may not exceed the ceiling on the SLC. Any residual may be recovered through PICCs on those lines, subject to the PICC ceilings, and any remaining residual through per-minute charges.

Access Charges and Unbundled Network Elements

Incumbent LECs may not assess interstate access charges on the purchasers of unbundled network elements.

Information Service Providers.

Incumbent LECs may not assess interstate access charges on Information Service Providers.

Terminating Access.

Based on the record, the Commission decided not to adopt any regulations governing the provision of terminating access provided by competitive LECs.

Universal Service

Incumbent LECs shall adjust their access charges to reflect contributions to and receipts from the new universal service mechanisms.

Further Notice of Proposed Rulemaking

Special Access PICC

The Commission seeks comment on whether PICCs should be assessed on purchasers of special access lines.


The Commission seeks comment on reassigning general purpose computer costs to the billing and collection category.

Statement of Chairman

Reed E. Hundt

The Commission's votes today on items labelled universal service and access reform follow our vote last August on interconnection, and complete the trilogy of major actions implementing the 1996 Telecommunications Act. Many, many other decisions have been made on the way, but we plainly have reached the end of phase one of the Act: the replacement of pro-monopoly rules with pro-competition rules, while at the same time extending our country's commitment to provide affordable telecommnications access to all consumers, kids, teachers, patients, and doctors.

It has been a long, wide-ranging trip for the Commission since the Act was signed in February 1996. Congress asked us to overhaul in its entirety the national policies that apply to the communications industry. We have received nearly 200,000 pages of comments, millions of Internet "hits," hundreds of thousands of emails, thousands of letters written by working men and women on kitchen tables late at night, and had hundreds of meetings with teachers, doctors, Congressmen, Senators, lobbyists, lawyers, businesspersons, and citizens. The dedicated civil servants at the agency have worked impossibly long hours and made many, many personal sacrifices. I am immensely grateful to them, and the country owes them a tremendous debt.

The work has been arduous, but it has been a joy. Throughout the process we have believed that Congress gave us a high calling --write the policies for the communications sector that will lead America into the 21st century -- and we have considered it a privilege to play our part.

Today's items mark the end of the beginning of our deregulatory, procompetitive rule-writing.

By our decisions today we

--assure that local basic residential telephone service prices need not be increased by any action of the Commission or Congress, although industry achieved consensus in urging us specifically to increase local service prices by raising the residential subscriber line charge.

--guarantee that long distance prices will fall, and specifically that basic schedule customers will see their first general price decreases since 1989.

--generate economic benefits to business and residential consumers exceeding $25 billion during the next five years (making this the single best day for consumers in this agency's history).

--begin to reduce unnecessary subsidies on multiple phone lines.

--mark the beginning of a new policy for a national data network that is based on the fundamental precept that Internet services could be in a "subsidy-free zone" -- such that internet communication neither relies on nor gives a subsidy.

--assure that all rural telephone companies will be supported in their mission of assuring affordable service to all Americans in high cost areas.

--craft an interstate access pricing policy that invites a greater breadth of competitive entry into the local exchange market.

--create a funding mechanism that will combine national and state monies to connect every classroom in the country to the information highway.

--connect every rural health care facility in the country to the information highway.

I have attached to this statement certain representative models of the impact of today's votes on certain customers. There is no guarantee that every consumer will believe that he or she is better off as a result of today's decisions. I firmly believe, however, that as a result of today's decisions the overwhelming majority will buy more communications services with their money or will pay less for the same services they buy today. As competition makes more significant inroads in telecommunications markets these results will be increasingly dramatic.

I believe further that the replacement of the regime of monopoly with the new paradigm of competition will lead to productivity gains, job growth, investment increases,and the continuing vitality of the American economy. It is not too much to hope that our commitment to a de-regulatory, pro-competitive rule of law in our communications sector will play a significant role in persuading all nations to take this step. The triumph of the World Trade Organization negotiations on telecommunications in February makes this hope, in my view, a substantial likelihood. We can all dream that as a result world economic growth -- driven by the spread of an accessible, ubiquitous communications network -- is on the verge of massive acceleration. Nothing could be more inspiring than the vision of major progress in the global fight against poverty, disease, and misery. Nothing less than that is at stake in our effort to spark sustained, significant, competition-driven growth in our communications and information sector, as ordered by Congress in the landmark Telecommunicatons Act of 1996.

On a personal note, many years ago I had a conversation with then-Senator Al Gore about his wish to see a schoolgirl in Carthage, Tennessee be able to learn from the limitless resources of the Library of Congress, without being barred by time, distance, and lack of money from such opportunities. He explained to me -- and this was long before the Internet was invented -- that fiber optic cable would make the connection between the schoolgirl and a bright future.

From this conversation came this Commission's desire to include classroom connections as an essential goal of universal service. President Clinton in several State of the Union speeches and many other appearances mobilized a national commitment to this goal. And as Vice President, Al Gore has never let a week, or perhaps a day, go by without working to bring to every schoolchild the opportunity to learn on the information highway -- a term he coined.

Thanks to the untiring efforts of Senators Snowe, Rockefeller, Exxon, Kerrey, Hollings, Congressman Markey, Secretary of Education Riley, and many others the Commission was given the legislative mandate to fund connections to every one of two million classrooms in all 100,000 schools in our country. School groups from all over the country supported these congressional initiatives and then pursued their implementation in our rules.

Today, at last, after three and one-half years of work, we can say that we have by law and rule a fully funded national commitment and national plan to connect every classroom to the information highway. We recognize that curriculum reform, teacher training, computer acquisition, software development, private foundation guidance, and much else remains to be done in order to bring the benefits of the communications revolution to the students and teachers of America.

Yet we are proud we have come this far. The Commission has delivered the result our children deserve, and I am completely delighted to have been a part of this process.

I want to acknowledge with a depth of gratitude and respect that words cannot express to all the colleagues and friends inside and outside the Commission who have helped us find our way in these decisions. Others will forgive me if I mention here only those who have been associated with my personal office team on these items: Blair Levin,John Nakahata, Karen Brinkmann, Ruth Milkman, Diane Cornell, Renee Licht, Jackie Chorney, Julius Genachowski, Tom Boasberg, Ruth Dancey, Cozette Ballestros, Monica Lizama, Aiysha Coates, Vanessa Lemme, Judith Mann, Terry Matsumoto, Laverne Braddy . It has been an enormous pleasure and honor to work with you.

May 7, 1997

May 7, 1997

Statement of

Commissioner James H. Quello


(CC Docket No. 96-45),

ACCESS CHARGE REFORM (CC Docket No. 96-262), and

CARRIERS (CC Docket No. 94-1).

Today, the Commission has established rules to implement the Universal Service provisions of the Telecommunications Act of 1996, as well as rules to restructure the access charge system while also initiating reductions in the levels of those access charges. I have believed throughout my participation in the debates regarding universal service and access reform that, as much as possible, we should seek to ensure that consumers experience the benefits of our actions. To this same end, we should try to avoid the possibility that total bills for groups of consumers could increase as a result of implementing new universal service programs and moving into a new access charge regime.

Universal Service

This Commission now has taken steps to establish processes for the administration of universal service funds in a way that allows the commitments represented in this section of the 1996 Telecommunications Act to be fulfilled. We have labored to develop a reasonable plan that will provide necessary and sufficient funds for schools and libraries as well as other universal service programs. We also have sought to avoid collection of funds beyond those legitimately needed to help make new and important services available to students and teachers in inner city, suburban and rural schools from Takoma Park, D.C., to Tacoma, Washington, from McAllen, Texas to Mackinac Island on the Upper Peninsula of Michigan.

We have achieved this balance by establishing funding necessary to begin the program at a reasonable level, with a provision that allows schools and libraries to begin the program January 1, 1998. By this time, we would hope that participating groups will have had the opportunity to develop their plans. Our decision to start the program with lower funding in the first six months, increasing in the following years, gives the program early constraint, with flexibility at later periods when greater demand is likely to develop. As a result, I believe this decision provides for new universal service funding within the limits of what consumers around the country are willing to pay.

The issue of what consumers are prepared to pay has been a very difficult one. The need for our attention to the issue, however, has been clearly expressed in many ways. It has required the Commission to balance the need for programs involved in universal service that are critically important to the future of this country with their cost. In this respect, this universal service proceeding is one of the most important decisions in this agency's history. At the same time, we have heard a consistent message from around the country that consumers and businesses are not necessarily willing to pay for these services through higher total bills for telecommunications services.

With respect to funding for health care subsidies, we have endeavored to make sure that rural, non-profit health care facilities have sufficient funding to meet the needs for providing services in communities that otherwise might not have the same resources that are available in urban communities.

There also are many other policy and market issues that will need to be resolved in a new universal service environment. For instance, I believe it remains to be seen how cable and wireless industries will continue to develop to play a greater role in the telecommunications services that will meet future universal service needs. As these developments occur, the Commission may continue to monitor the equity of contribution and recovery of universal service funds by paging services as well as the extent to which wireless services in general should contribute for intrastate services.

Access Reform

The Commission's actions today on access reform involve two components: (1) several structural changes that will cause access components to move to more reasonable categories and to become subject to competition where possible; and (2) reductions in the current level of access charges, largely accomplished through revision of the productivity and sharing mechanism in LEC price caps.

Where this decision changes the structure of end user charges, as in our treatment of business and residential customers, and consumers with second or multiple lines, I believe our decisions should be -- and are -- characterized by balance. As a result of this necessary reform of the access payment structure, charges should remain within reasonable bounds and should help to promote the development of competition and consumer benefits.

I also believe this Commission would be remiss in our regulatory duties to the American public and responsibilities to our licensees if we were to restructure universal service without concurrently engaging in access charge reform. We have talked about this step for quite some time. Many parties have expressed their views in a very public fashion as to whether or not this step is warranted, or to what degree access charges should be reduced. I believe that this step to restructure and reduce the level of access charges is the right thing to do and this is the right time to do it.

The consumers and users of telecommunications services are the intended beneficiaries of today's actions regarding access reform. Now that these decisions are adopted, I believe it will become clear that we have done our best to ensure that consumers do not bear the burden of implementing the new universal service program and access charge reform. Our actions also represent a fundamental part of the Commission's effort to facilitate competition in the local exchange marketplace, in this case by reducing access charges paid to LECs by interexchange carriers.

The primary vehicle for this reduction is the decision to change the existing combinations of productivity factors, or "x-factors", and sharing options to a single productivity factor of 6.5% accompanied by no sharing obligation. As a result, this decision continues the Commission's efforts to move away from the lingering remnants of rate of return regulation for local exchange carriers. Today's decision will complete the movement of price cap LECs away from the sharing obligations that were part of the past system.

Looking to the Future

I want to emphasize that today's actions represent a first step in many respects.

Concerning universal service, this is not a day to declare victory. There is much left to be done by the Commission, the states, temporary and permanent fund administrators, school districts, libraries, health care facilities, parties developing cost models, and telecommunications companies seeking to provide services and enter new markets. This is definitely an important day, but the real effort is just beginning. That effort will require investment, planning, training in using services, and community, professional, and corporate involvement, and it will only be successful after the continuing involvement, in community after community, by the many parties who have so diligently participated in this proceeding.

The Commission's action to increase the productivity factor not only results in reduced access charges in the first year, but also in further reductions in access charges in subsequent years. In another respect, it may very well become necessary very soon for the Commission to consider how to supplement today's decision to allow for pricing flexibility by LECs as competition develops to a greater level in the local marketplace. One possible way to provide that flexibility might be through relaxing the 6.5% productivity factor where LECs can meet criteria to demonstrate sufficient competition.

At the same time, later steps might also include the potential for checks and balances in the event that competition in the local exchange marketplace does not develop as soon as some seem to expect. Once again, down the road the Commission may need to consider more specific measures to ensure that the platforms necessary for competition truly are available. It is my hope that those steps won't be necessary.

Finally, some parties have warned recently that any actions by this Commission to lower access charges may cause LECs to seek to raise local phone rates. That matter will become an issue for state commissions, and it is my hope that they will respond to any efforts to raise local rates by ensuring that consumers ultimately benefit from federal and state actions to implement the Telecommunications Act of 1996 and any related decisions.

May 7, 1997

Separate Statement
Commissioner Susan Ness

Re: Universal Service; Access Reform; Price Cap Review

Today we reach another milestone in our efforts to secure for consumers the myriad benefits made possible by the Telecommunications Act of 1996. We are steadfastly fulfilling the tasks assigned to us by Congress in a manner that will prove the wisdom -- and realize the vision -- of this landmark legislation.

Our pursuit has many facets. We must eliminate impediments to competition, ensure fair rules of engagement for all market participants, safeguard the interests of residential consumers, especially those with limited incomes and those in high cost areas, promote economic efficiency, and lower prices to consumers. Today's orders represent substantial progress on all these fronts.

Much of what we are doing is driven by law and by economics. But the results of our decisions have a human face:

Will a poor family in Appalachia be able to summon the police or fire department in an emergency?

Will a critically ill patient in a remote region of Montana have her tumor quickly and accurately diagnosed?

Will a curious high-school freshman have an opportunity to view Thomas Jefferson's valedictory letter, in his own aged but still powerful hand?

Will an elderly widow be less hesitant to break her loneliness with longer and more frequent calls to her great-grandchildren?

Today brings us closer to a day when these questions can all be answered "yes."

Fifteen months after enactment of the Telecommunications Act, the transition to a new industry paradigm remains far from complete. The road is not straight, or smooth, or free from peril. But a steady course -- and a shared determination -- can bring us to the desired destination.

We still have far to travel to resolve issues of support for high-cost areas. I believe we have a sound plan and a clear timetable for implementation, but we still face two main obstacles. The proxy models, already impressive feats of cost engineering, still require further refinement before they can reliably be used to target federal cost support. And a new consensus must be achieved before support essential to maintain affordable telephone service in high-cost states can be drawn from states with lesser need, as I believe the Congress of the United States clearly intended. In the meantime, we can make only incremental changes in the implicit subsidies that currently support the high-cost services provided by large price cap telephone companies.

For the smaller rural companies, change will come even more gradually. This is consistent with Congress's expectation that competition would arrive more quickly in the cities and the suburbs. In the interim, we recognize that rural economies must not face unnecessary dislocations.

The need to avoid harmful dislocations, while also encouraging beneficial change, is crucial to much of what we are doing in the access reform and price cap orders. We are implementing many changes that will help to ensure an orderly transition from monopoly to fair and efficient competition.

In particular, the recovery of more costs through flat-rated charges instead of usage-sensitive charges will reduce the exposure of incumbent telephone companies to "cherry-picking" by new entrants, even as they also expand the range of customers likely to be offered competitive alternatives. Completion of the conversion to a three-part rate structure for tandem-switched transport will eliminate a historical artifact, but allow time for affected carriers to adjust. The new X-factor more accurately reflects the productivity gains that can reasonably be expected from price cap carriers, while avoiding radical reduction of telephone company access revenues and proposals that would have unfairly penalized those companies that have most assiduously conducted themselves in accordance with the incentives we deliberately created.

We prefer to rely on marketplace forces rather than regulation to drive investment decisions and price reductions. Some will fault us for not acting more aggressively; others will complain that we are too heavy-handed. My own view is that each decision, and all of the many issues in these orders, has been approached with balance and sensitivity, fairness and principle.

Not everyone will be satisfied. But no one can say that we have not read the law, considered economic theories and business realities, consulted our consciences, and sought to achieve as much fairness as is humanly possible.

I readily confess that I cannot muster the same passion for restructuring the arcane and impenetrable Transport Interconnection Charge as for devising a completely new regime to provide discounts for schools and libraries to access telecommunications and information services. Though I am fully committed to full realization of all of the universal service provisions, the Snowe-Rockefeller-Exon-Kerry provisions reflect an especially bold vision. For our part, we have used our creativity to harness the magic of competition to reduce the costs of the support program, created incentives to ensure only prudent use of supported services, targeted discounts to minimize the danger of a widening gap between information haves and have-nots, and sought at every turn to maintain our commitment to competitive neutrality.

Even more important, we have sought to leave crucial decisions in the hands of educators and librarians, scattered throughout the country, rather than in the hands of Washington-based administrators. And, best of all, we have arranged a smooth take-off that will avoid creating unsustainable financial burdens on carriers and consumers, allowing competition and growth and declining prices -- rather than rate increases -- to supply the necessary funds.

In this area, as in the others addressed by today's orders, we have applied all our energy, and all our skill, to make the best decisions, based on our current knowledge and the law. A continuing commitment to constructive dialogue by all interested parties -- telephone companies, long distance companies, wireless companies, small businesses, large businesses, residential consumers, state regulators, and members of Congress -- is critical to continued progress. At the end of the day, fairness to all parties and demonstrable benefits to consumers are the standards by which we will all be judged.

Press statement of FCC Commissioner Rachelle B. Chong

Re: Access Charge Reform

May 7, 1997

If you look up "access charges" in a thesaurus, the synonyms you will find include: "complicated, intricate, bewildering, unfathomable." For all of its complexity, our existing access charge system has remained a constant landmark in our telecommunications landscape during the past decade. With the passage of the Telecom Act, however, the days of the access charge system are numbered. In the Act, Congress told the FCC to make implicit universal service subsidies explicit -- and thereby, create a universal service program that would make sense in a new competitive world.

No one can deny that access charges create distortions in the marketplace and vast economic inefficiencies. Both because of its structure and pricing level, the current access charge system results in higher costs to interexchange carriers. These costs, of course, are eventually passed through to consumers and show up on our long distance bills in the form of a higher per minute rate.

I believe our actions today -- both in this docket and the price cap proceeding will bring about a drop in access charges. These per-minute price reductions, however, will not come about with the wave of a magic wand. They will occur because of the three step process we implement today.

First, we create a framework so that the rates charged for the components of access are more reflective of costs. Second, we will move residual costs that were traditionally recovered on a per minute basis into a more efficient flat-rated charge system. Finally, multi-line business and multi-line residential customers will pick up a greater share of costs through increased subscriber line charges and flat-rated charges.

The one major concern I have about this approach is the impact that these increased flat rate charges will have on small business users during the early years of the transition. Because we seek to protect single line customers, the new flat rate charges fall disproportionately upon the shoulders of multi-line customers and may have a disparate impact on small businesses and people who have a second line at home. I have worked hard with my colleagues to soften the blow of these new charges on small businesses, particularly those who do not make many long distance calls and will not experience the full benefits of lower per minute calling rates that will be enjoyed by a large business.