Page 8 - PCCA Journal 2nd Quarter 2012

Basic HTML Version

PCCA Journal|2
nd
Quarter 2012
8
each location.
The original Bell Telephone Company recognized this and
focused its network installations in metropolitan areas where
investment could be recovered. When Bell’s telephone equip-
ment patents expired in 1894, rural telephone companies
emerged to provide service to communities left behind by
Bell. One aspect that many take for granted today, however,
was missing—there was no guarantee that rural telephone
users could place calls to locations outside their network.
In addition to metropolitan telephone systems, Bell also
controlled long-distance telephone lines. The company would
interconnect with independent carriers, but only for a high
price.
In response, the U.S. government raised an anti-trust
action, and Bell responded with the “Kingsbury Commit-
ment”: Bell would interconnect with the rural independents
in exchange for being permitted to operate as a regulated
monopoly.
Over the course of the next several decades, rural tele-
phone companies responded to market demands, and ad-
ditional growth occurred after the 1949 “Telephone Amend-
ment” to the Rural Electrification Act of 1936. The new law
offered low-cost loans for rural telephone companies. In
the first six weeks following approval of the legislation, the
Rural Electrification Administration received 700 requests for
information, and within two weeks after application forms
were approved, nearly 100 applications were filed. The loans
enabled rural network construction but did not fully resolve
the comparatively high costs of
providing service in those areas.
In order to keep local service
rates affordable, long-distance
services were priced above cost
to subsidize local service.
Competition and
Technology Prompt
Reforms to the
Support of Rural
Networks
By the early 1970s, the tele-
phone market was changing.
American Telephone & Tele-
graph (AT&T), the successor to
Bell, enjoyed a monopoly in major metropolitan areas and
in some instances could not keep pace with demand. At the
same time, upstarts such as Microwave Communications,
Inc. (MCI) were challenging AT&T’s dominance in the long-
distance market. In 1974, the federal government filed a new
anti-trust suit against AT&T, responding to concerns that the
company’s control of both local and long-distance networks
could enable it to quash threats to its long-distance business.
The proceeding lasted eight years, and in 1982 AT&T agreed
to divest itself of its local operating companies, leaving it
to provide only long-distance services. The local operations
emerged as separated Regional Bell Operating Companies.
Because internal cross-subsidization was no longer pos-
sible, per-minute “access charges” were introduced. The
access charges reflected the fact that long-distance providers
would not be able to provide their service unless they used
the local networks to complete this call. The access revenues
enabled local companies to keep local service rates affordable
in high-cost areas.
In 1996, Congress introduced sweeping reform of telecom-
munications laws, including an updated strategy to ensure
that users in rural and other high-cost areas would have
access to communications services that were reasonably
comparable in both price and quality to those available in ur-
ban areas. The law required all telecommunications providers
to contribute to a Universal Service Fund (USF) that would
distribute explicit support to those companies with extraor-
dinary costs; together with continuing access revenues, this
funding enabled the high-cost companies to maintain afford-
able local service rates.
Rural America’s Broadband Future
Continued from page 7