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Executive Summary

NECA's study, Trends in Telecommunications Cost Recovery: The Impact on Rural America, concludes that rural telephone customers are paying more for the same telecommunications services than customers in non-rural areas. The study documents how rural America is affected by government policy that shifts the burden of telephone network cost recovery from long distance carriers to end users and government support mechanisms.

The study finds that rural customers are less able to absorb increases in end user charges than their urban counterparts. Moreover, the disparity may widen between the quality and availability of telecommunications services for rural versus non-rural customers as a result of this policy. Though rural end users have faced bigger increases in their end user charges than urban customers, they are not necessarily sharing in the benefits that should accrue. For example, long distance carriers still have not made their interstate toll discount plans available in many rural areas.

"The FCC's recent regulatory proposals to reduce access charges even further and the growing questions about the sustainability of the universal service fund mechanism suggest that rural customers are likely to see even more end user charge increases," says Victor Glass, who led the study team. "While the drafters of the Telecommunications Act of 1996 expected that opening the local telephone network to competition would lower rates and lead to better service, these outcomes are not evident in rural areas."

Key Findings

• Since 1994, rural basic service rates have risen by 36 percent.
• Only 57 percent of rural customers have access to long distance discount plans.
• Average long distance rates dropped from 14 cents per minute in 1994 to 9 cents per minute in 2000, but many rural customers are paying 18½ cents to 35 cents.
• Universal service support fund payments could reach $7.1 billion per year by 2006.
• Wireless and other competitive services are draining traffic from the switched network. " Minutes demand will likely decline by 2.8 percent per year, while lines will increase by 0.7 percent per year for the next five years.