The Truth About Local Telephone Service: . . . a letter to the editor from GTE Chairman and CEO, Charles R. Lee

AT&T; is mounting a nationwide campaign to convince consumers that it should stop having to pay for using the local phone network. AT&T;'s argument is totally incorrect and ignores the policy of Universal Service which federal and state regulators, and the local telephone companies, have pursued for the past 60 years.

Local telephone companies traditionally sell two products: basic local service, by which customers can make unlimited local calls, and long distance access, which allows customers to use the local phone network to make long distance calls.

Under this Universal Service policy, regulators have sought to keep the rate for basic local service as low as possible so that all Americans can enjoy basic phone service at an affordable price. To accomplish this, regulators have required local telephone companies to charge small flat fees for unlimited local use-typically $12-15 for basic local service. This price is usually below the actual cost of the service, which means the residential consumer has received an outstanding bargain. Ninety-four percent of American residences have unlimited use of a phone that is part of the world's best telephone network for a monthly fee that is less than a tank of gasoline.

But to maintain these low basic rates, regulators have to make up the shortfall by requiring higher rates on long distance calls. In other words, consumers are charged below-cost for local usage and significantly above-cost for long distance calling. The theory behind this is that long distance calls are more discretionary than basic service. The bottom line is that long distance callers effectively subsidize low basic rates. They pay billions of dollars annually in long distance access charges that are designed to actually cover the cost of low basic service.

Whether this is a good policy or not, the fact is that today's system of access charges enables low basic service rates. Therefore, it is disingenuous for AT&T; and other long distance companies to suggest that consumers will gain by eliminating these charges. Local rates would have to go up to cover the shortfall.

In fact, the aborted efforts of AT&T; and other long distance companies to enter the local service business is clear proof that, on an overall basis, the incumbent local phone companies are in no way making an excessive profit.

There are absolutely no barriers to these companies building facilities or entering the basic local service business. Clearly, their objective is to use the regulatory process to allow use of the incumbents' facilities at an inappropriately low price, thereby jeopardizing the availability of local service to all Americans.

There is, however, a larger issue to be solved here. Namely, reconciling how the Universal Service system can work within a competitive marketplace, as required by the Telecommunications Act of 1996. The Universal Service system does need to be fixed-by turning these access charges into explicit support that is paid for and available to all telecommunications providers. Until the Universal Service system is properly fixed, there will be no widespread competition in America's local phone markets.

Dealing with the Universal Service issue is vitally important for keeping local rates affordable. What is also clear is that the long distance industry's campaign is starkly self-serving, and is only complicating regulators' efforts to do the right thing for consumers.

GTE is one of the world's largest telecommunications companies and a leading provider of integrated telecommunications services.