January 14, Memo to: Senator Heinz

Transcription

1 January 14, 1935 to Memo to: Senator Heinz From: TP/SM -*«*.*^ ;'... Re: Telephone Service and Older Americans/Lifeline Assistance Background Universal (telephone) service is defined as making available, so far as possible, to all people of the United States a rapid, efficient nationwide and worldwide wire and radio communication service with, adequate facilities at reasonable charges. Two major legislative efforts contributed to th.-- widespread availability of telephone service in the United States. The Communications Act of 1934, which stated the goal of universal service at reasonable rates, and the Rural Electrification Act, which provides low interest loans to furnish and improve rural telephone service. Efforts to establish universal telephone service have been quite successful -- there is about a 94% telephone penetration rate in this country today. Pennsylvania's penetration rate in the 1930 census was 96.13%. Older Americans are more dependent on the telephone than-perhaps any other segment of our society. For those with limited mobility or illness, and the homebound, the telephone may provide their only contact with the outside world and may be their only means to summon help in an emergency or to secure necessary provisions, such as. food and medicine. A 1981 study by the American Association of Retired Persons (AARP) found that older Americans use the telephone more than when they were younger and that it is a more important means of staying in touch with relatives and friends than evei; before. While telephone service is extremely valuable and important to all persons, it is literally the lifeline of the elderly. Lifeline Telephone Service Lifeline service is generally defined as basic telephone service intended to include a limited number of outgoing telephone calls in the local area, with a per-call charge for additional calls. It does not include "measured" service, where charges are based on number, distance, and duration of calls. Mote: Consumers hate measured service because they are not used to it. Critics of measured service say it hurts consumers because it would be difficult for people to keep track of each call and budget for what are now mostly fixed monthly costs. Divestiture and Deregulation in the Telephone Industry The recent melding of communications and information due to technological advances and the entrance of marketplace competition into a previously monopolistic telephone industry have prompted both a restructuring of the telecommunications industry and an examination of the major laws and policies which regulate its activities. Among the most significant actions taking place in the telephone industry are the recent divestiture of the American Telephone and Telegraph Co.apany (AT&T) and its entrance into unregulated markets and modification, of major Federal regulatory policies which govern industry behavior. These changes in the industry have caused substantial local rate

2 increases which threaten the ability of people/ especially rural and. low-income consumers to maintain telephone service. Increasing Telephone Rates Results of three studies (FCC, AT&T, and NTIA) make clear the fact that telephone rates will rise at a much quicker pace than that experienced in the past. Many groups predicted a doubling or tripling of telephone rates after divestiture and even AT&T predicted a 50% increase. As deregulation has come to a head in the past three years, local phone companies have asked for an unprecedented $10.9 billion in local rate hikes and have gotten $5.1 billion of that. The average cost of local phone service has risen 26% since Note: Phone service in Pennsylvania is relatively inexpensive when compared with other states and Bell of PA has stated that future rates will probably not soar to levels other phone companies might charge. But Bell of PA recently notified the Pennsylvania Public Utility Commission that it will file for a rate increase in January Disproportionate Impact While all telephone ratepayers will share in paying higher telephone rates, it appears that rural and low-income citizens will bear a larger burden. Dr. Perl of the National Economic Research Associates (LIBRA) prepared a study which AT&T introduced at its antitrust trial. It indicated significant elasticity of demand for telephone service, especially among the rural poor. The study found that a 100% increase in basic telephone rates would result in a drop off of subscribers to 83.69% or a 10% reduction in phone subscribership. Many advocates believe that his figure is very modest and that it is more likely to be in the 16 to 20 percent range. A PA case study by the Big Run telephone company showed that when the company received approval for a 40% local rate increase in 1981, within months 22% or 204 of the system's 924 customers dropped service. A major problem is that phone disconnections are disproportionate and affect pockets of demographic groups such as the poor elderly. Another study by L-7ERA shows that there are significant differences in telephone penetration by income. For households in poverty, telephone penetration is about IS percentage points below, that of average income households. Increasing the telephone access price will have a more pronounced effect on low than high income households. As a consequence, increasing the price Will tend to increase the spread in penetration between high and low income households AARP Study rn he elderly are particularly vulnerable to increases in telephone rates since so many live on low or fixed incomes and cannot afford high monthly access charges or increased telephone rates. A survey completed in December 1984 by the Hamilton & Staff polling organization for the American Association of Retired Persons found that older consumers are not benefiting from the AT&T breakup. The survey of 1504 persons nje 55 and older found that more than one in five older Americans say they have had to curtail their use of the telephone clue to higher costs. Among those who have incomes of les: than $3,000 per year, 35% report having to cut down on their phone use. At the same time, more than two-thirds of those surveyed sc\id _ o _

3 that phone service was more important to tham now than ever before and 33% reported using the phone more now than they did 10 to 15 years ago. Three-quarters of all older persons have seen the local phone service rates increase during the past year, with one-third of thosa being $6 or more per month. Only 10% reported that their long distance phone bills have gone down at all during the past year, despite the promises made at the time of the AT&T split. More than two-thirds claim that it is now more confusing to make decisions about telephone service than it was a year ago. Only 5% of the old^r population has taken advantage of the opportunity to switch long distance phone companies. The FGC has argued that in our increasingly mobile society, older Americans probably live greater distances from children and grandchildren and that it is likely that lower long distance rat33 would hold a special attraction for many of them and that they will be among users to benefit from toll rate reductions. Current literature reveals, however, that those on fixed incomes, such as the elderly, make relatively few long distance calls. An analysis of long distance calls by the Michigan Public Service Commission shows that the vast majority of the citizens making little or no long distance calls over a three month period are senior citizens. Almost two-thirds of oneparty senior citizen telephone customers make less than $5 of long distance calls in any one-month period. The 19B4 AARP survey also shows that only about half of all low-income older persons make more than one long distance call a month, compared to 75 percent among all persons over age 55. Federal Agency Actions Background / In the past, to provide low-cost service, the Bell system charged long distance consumers more than the cost of services they received and used the extra revenues to subsidize local telephone rates. In the 1970's, other companies entered the long distance business. They used local lines on both ends of a call, but substituted their own equipment for the Bell system's long distance lines. In addition, technologies emerged that allowed these long distance carriers.and a number of large corporations to bypass local telephone lines altogether for. long distance communications. Because these competitors were not required to subsidize local telephone service they were able to offer lower long distance rates. As the Bell system became less competitive, it had less long distance revenue to subsidize the local service (so it was argued). There wan a growing fear that if businesses are overcharged for service, they will purchase their own in-house telephone system, connect directly with a long distance carrier and bypass the local network, and that consumers would be stuck with large local rate increases because of the loss of large customers. Access Charge To remedy this problem, the FCC proposed a plan to begin charging customers directly for local telephone--.costs. Monthly charges of SG per line for multiline business customers went into effect in the summer of In July 1903, tho agency voted to impose a $2 a month access fee on consumers starting January 1934 and rising to $4 in -3-

4 fto The original proposal was attacked ~by critics as encouraging large numbers of customers to give up their phones. Congressional pressure last year, particularly from the House, forced the FCC to modify and to postone the introduction of consumer access charges until June Federal-State Joint Board In November 1984, the Federal-State Joint Board (charged with studying the issues and composed of four State and three FCC Commissioners) adopted recommendations on subscriber line charges, high cost assistance and measures to assist low income households. The Joint Board recommended implementation of a $1 per month subscriber line, charge (also known as access charge) for residential and single-line business customers effective June 1935, to be increased to $2 per month in June 1986, and frozen thereafter pending further study. The Board emphasized that it did not expect the access charges to harm universal service, but recommended measures to offset the effect on low-income subscribers. Specifically, it recommended an optional State program for a 50% reduction in the subscriber line charge for customers meeting a State-established means test subject to verification. Revenue shortfall would be funded through the interstate carrier common line charge. States taking advantage of this assistance mechanism would be required to make an equal monetary reduction in the local exchange rate for subscribers who qualifyfor the reduction. In effect, it would amount to a waiver of the full amount of the access charge. The Joint Board also recommended that local telephone companies be permitted to impose a monthly surcharge of up to 35 cents on all customers. 2. Federal Communications Commission (FCC) / The FCC adopted the Joint Board's recommendations in December 1934 and implemented the subscriber line charges to take- effect in June 1985, including, implementation of the assistance measure. The FCC also endorsed the Joint Board's recommendation for expedited study of lifeline assistance measures which go beyond the equivalent of a subscriber line charge waiver. It directed the Joint Board to bsgin work on this issue by the end of March It directed the Joint Board to present its recommendations within 130 days of beginning the study. Congressional Activity Previous Activity In the 93th Congress, numerous measures to ensure the availability of basic telephone service at reasonable rates and to modify, void or delay the implementation of the FCC's acces charge plan were under congressional consideration during the first session. Senator Heinz was a co-sponsor of Senator Pack'.vood's bill, S. 1660, the Universal Telephone Service Preservation Act of 1933, which also contained lifelife assistance measures. Senator Lautenberg also introduced S. 1677, an individual bill to specifically provide lifeline telephone service. Although the House passed H.R {also aimed at preserving univeral telephone service), on January 26, 1983, the Senate voted not to proceed ;vith S No further consideration of major legislation on this issue occurred in the 93th t=2

5 Congress. Congressional activity was no doubt derailed due to the FCC's decision to delay implementation of the access charge, on residential customers. Consumer Groups L Many consumer groups and various State public utility commissioners supported these legislative efforts based on their concern over the impact that substantial local rate hikes may have on telephone subscribership, particularly for high cost rural and low income consumers. Consumer advocates also claimed that significant drops in long distance rates which are anticipated as a result of the FCC's access charge order will not offset end user charges for the average residential consumer. Industry MCI and GET, carriers which compete with AT&T in the long distance market-., had also endorsed legislative action due to their earlier concern that the access charge decision as originally proposed was anticompetitive and would cause rapid cost increases for those carriers competing against AT&T's long distance network. Modifications in the FCC order dampened the initial support for legislation. Current Legislative Initiatives On January 3,1985 f Congressman Leland introduced II.R. 151, the "Lifeline Telephone Service Act of 1935" to provide lifeline te.lophone service in order to assure that significant rate increasss do not threaten universal service by forcing Americans to discontinue their telephone service (especially the poor, elderly and handicapped). He also introduced H. Res. 19, expressing the sense of the House that the FCC should, on an expedited basis, develop arid implement a telephone lifeline assistance program. ITo similar legislation has yet been introduced in the Senate. Aging Committee Efforts The Aging Committee staff has bean in contact with Congressman lie Land's staff and they look forward to bi-partisan support of their legislation. We have also discussed our interest with Senator Lautenberg's staff (Senator Lautenberg took the lead on this issue in the 93th session). They are considering re-introducing tha legislation, but may not be prepared to do so until later this month. Congressman Wirth (Commerce Committee) has expressed approval of the FCC's order reducing the access charge to $1 and appears to be waiting for the Joint Board's further study of the lifeline assistance measures before introducing any legislation. The Urban Elderly Coalition found that one of the major telecommunications concerns of older persons is the continued affordability of telephone service. The Consumer Federation of American recently released a study that says that 2 million consumers will go without a telephone by mid-1935 because of spiraling residential rates. According to the study, $2 billion in local telephone rate increases since the breakup of the Bell system will force an additional 750,000 households, or 2 million people, to either ~~ r _

6 (Of no give up a phone or abandon plans to acquire one. The Federation report also said a $2 a month residential access charge will force over a million more people to give up telephone service. In addition, the AAR? plans to endorse Congressman Leland's lifeline bill. It is generally agreed that changes in prices and services that have followed divestiture are far less popular with the public than were the deregulation moves of the We think that sponsorship (with Senator Lautenberg or otherwise) of a lifeline bill will be politically popular with consumers and elderly advocates. We recommend, therefore, that you sponsor lifeline assistance legislation. -6-