UK study shows long-distance charge reform would benefit consumers, businesses

The Kentucky Chamber, along with Connected Nation and the Kentucky Association of Economic Development, hailed the recent release of a research study by the University of Kentucky Center for Business and Economic Research that underscores the need for the reform of telephone long-distance access charges in Kentucky to benefit consumers.

The study follows a meeting of the Federal Communications Commission (FCC) on October 27, where the FCC voted to reform one element of telephone long-distance access charges as part of a larger reform of the federal Universal Service Fund. The FCC intends to transition the USF from a voice telephone subsidy program to support broadband deployment in the U.S.

“The Kentucky Chamber participated in this study to look at the economic effects that access charges have on our telecommunications infrastructure and the associated costs to businesses and individuals,” said Dave Adkisson, president and CEO. “We now have data that demonstrates the impact and points to the need to reform as our neighboring states have done.”

Last year, the Chamber, Connected Nation, the Kentucky Association of Economic Development, the Communications Workers of America, the Louisville Urban League and seventeen local chambers of commerce sent a letter to the Kentucky Public Service Commission (PSC), urging it to reform long-distance access charges to encourage investment and deployment of next-generation communications networks.  The PSC has since initiated a review of access charges, but that review is still ongoing and no reforms have yet been implemented.

“CBER’s research supports our belief that Kentucky should join its neighbors in reforming long-distance telephone access charges in order to help consumers, spur investment and drive broadband availability,” said Brian Mefford, CEO of Connected Nation, Inc. “The FCC Chairman recently stated that the current system is unfair to consumers and results in higher phone bills, and the FCC is doing what it can to reform this system, but there are still important things left up to Kentucky and its regulators to tackle. Connected Nation advocated last year, as part of a coalition of Kentucky-based organizations, for the PSC to enact access charge reform, and UK’s white paper provides ample, data-driven support for the PSC to do just that.”

The University of Kentucky’s major findings include:

• Higher access charges lead to higher prices to consumers for intrastate long-distance services, as well as higher prices for goods whose production processes require intrastate long-distance communication.
• Inefficiently high access charges reduce competition in the intrastate long-distance market, and they lead to suboptimal investment in the present and the future.
• Each of the states bordering Kentucky has addressed intrastate access rate reform. Illinois, Indiana, Missouri, Ohio, Tennessee, Virginia and West Virginia have individually implemented policy to decrease intrastate access charges. Several states have gone as far as requiring providers’ intrastate access rates to mirror their interstate access rates, which are governed by the FCC, while others have been less aggressive but still requiring providers to lower their rates. Kentucky has not revisited access reform since 1999 and is the only state in the region that has failed to address intrastate access reform.
• There are economically sound reasons for two products with similar functionality and similar costs—intrastate and interstate long-distance connection services to local exchanges—to have similar prices.
• A final economic inefficiency of the current access charge system is that it creates arbitrage opportunities by charging different prices for essentially the same product, resulting in wasteful spending that could be avoided.

The Center for Business and Economic Research’s study was commissioned in order to determine if research data supported the assertion that an economic rationale exists for reform of the telephone long-distance access charge system in Kentucky.