|Campaign for Unmetered Telecommunications|
It has been claimed that unmetered local calling exists in the US because long distance services subsidise local service. Americans are paying for their unmetered local calls through higher prices for long distance services, or so the argument goes. The implications of this argument are that:
The argument is incorrect, and so are its implications.
Is there a subsidy?
First, long distance charges do not subsidise local charges in the US. Observers here may be confused by the somewhat complex payments that long distance operators, who are generally distinct from local operators, make to the local providers. In the US, these payments are called 'access charges' and they are similar to the interconnection charges that UK long distance operators pay to BT. At the national level, access charges include a relatively small component to cover the local providers' costs of building and maintaining the local loop, (ie the connection between the customer's premises and the local exchange). Far from constituting an irrational subsidy, these payments are a payment for the use of the local loop. After all, long distance calls must use that loop and should help pay for its upkeep.
In the US, intrastate long distance charges are governed by state regulators, many of which have also mandated that a component of access charges contribute to loop costs. However, in some states, such as mine, California, this component of access charges has been abolished.
The upshot is that a relatively small portion (probably, on average, 10% or less) of the cost of local service in the US is recovered from payments made by long distance companies to the local providers. These payments are not subsidies, but a contribution to the fixed costs of the local loop. Also, they are not in any way related to the very low cost of unmetered local calling, a point I will return to shortly. In sum, the US system of paying for the cost of the local loop is not at all essential for unmetered calling.
Are Americans paying higher charges for other services?
There is no definitive way to answer this question since it is impossible to know exactly what US customer bills would look like in the absence of unmetered local calling. But there are at least three reasons to believe that unmetered local calls add little, if anything, to customer bills.
First, local calls cost phone companies little - very little. Cost studies in the US (which consumer representatives are able to review under nondisclosure agreements) show that local calls are very inexpensive to carry. BT's 5p minimum charge far exceeds the very low set-up costs for local calls, and BT's per-minute charges dwarf the per-minute costs. (Because of nondisclosure agreement obligations, I cannot be more specific).
Second, metering has its own costs. Metering requires the use of equipment to capture the information necessary to prepare an accurate bill, namely the telephone number called, the time of the call (in order to properly rate it) and the duration of the call. The itemisation of metered local calls also imposes additional expenses for billing and postage, including added time for computers to prepare bills, increased paper costs, and higher costs to mail heavier bills. Unmetered calling avoids these costs.
Third, customer bills for comparable services are generally lower in the US than they are in the UK. In order to compare apples to apples, let's first look at the comparative prices for local service. In California, my phone company, Pacific Bell, charges $14.75 per month for 'flat-rate' local service, which includes the ability to place and receive calls, unlimited and unmetered calls within my local calling area (which has a 12 mile radius), 5 uncharged directory enquiries, and an uncharged listing in the telephone directory. There are other charges on my bill, which should also be included for comparability with UK local charges. I pay an approximately $1 monthly charge to my long distance provider to cover that company's payment to Pacific Bell for local loop costs. In addition, my bill includes a roughly 3% surcharge to fund affordable service to rural areas. In total, I pay about $16.12 (about £10) per month (excluding taxes) for the UK equivalent of line rental, unlimited local calls, and 5 uncharged directory enquiries.
In the UK, my BT line rental costs £7.59 per month (excluding VAT). Thus, for only about £2.50 additional, in the US, I get unmetered local calling covering an area at least as large as any UK local calling area, plus five directory enquiries. According to OFTEL's most recent analysis of the UK telephone bills (covering the period August 1997 - July 1998), the median user paid £4.92 per month for DQ and local calls. (OFTEL's somewhat old data probably understate current local call expenditures, since fast growth in UK Internet usage probably increases the median rapidly).
In sum, the median local telephone bill costs 25% more in the UK than it does in California. In fairness, rates vary in each of the fifty states, and California's rates probably fall in the lower half of the distribution. However, my comparison has not taken into account the considerable value of additional local usage that results from unmetered local calling. With unmetered calling, UK consumers would gain the benefit of considerably more usage, as well as additional peace of mind from knowing exactly how much they will be charged for local service.
Are the US's lower local call charges offset by high long-distance rates?
Not that I can discern. Accurate long distance rate comparisons are difficult, since there are so many long distance providers and so many complex rate offerings on both sides of the Atlantic. Adding to the difficulty is the huge disparity in size between our two countries, which necessitates making imprecise judgements about which calls to compare. I can report my observation, which is that long distance rates are generally comparable in our two countries. Certainly, I am not struck by cheaper long distance prices here the way I am struck by much higher charges for UK local service.
The upshot of this bill comparison is to deflate the suggestion that US customers are paying dearly for their preference for unmetered local calling. If unmetered local calling were available in the UK, it need not result in significant increases to customer bills. As in the US, unmetered calling could be an optional service although, based on the overwhelming popularity of unmetered service in the US, I suspect that most UK consumers would take advantage of such an option. Unmetered calling would add enormously to the value of telephone service, not just for gaining access to the Internet, but also for conducting one's daily affairs in the community.
Tom is Senior Telecommunications Attorney for The Utility Reform Network (TURN), a non-profit consumer advocacy organisation based in San Francisco, California. Tom was in the UK researching our telecoms regulation as a 1998-99 Atlantic Fellow in Public Policy, a research fellowship sponsored by the UK Government.
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