The costs of billing and measurement are therefore calculated as follows: - Cost of measurement during the busy hour, based on an average 2.5 minute call; 40,781, 904 * .954 * .111 * $.01182 - $50,288 per month. Cost of Billing; 40,781,904 * .954 * $.00473 - $182,091 per month. 1 % of calls in the busy hour. 2 Busy hour measurement costs. 3 Billing cost per message. 4 Less 5% repressed messages. Repression of local calling has been experienced in other jurisdictions when usage sensitive pricing has been instituted. Assuming 5% repression of calls in the busy hour, i.e., calls that are foregone or are shifted to non-busy hour periods via incentive pricing options, the potential cost savings are: 40,781,904 * .111 * .052 * $.45833 = $102,797 1% of calls in the busy hour. 2 5% repression. - 3 Busy hour switching and trunking costs for an average 2.5 minute call. As one can see, using the cost/benefit measure as outlined above, the cost savings recover the cost of measurement, and partially offset the cost of billing. The result of these calculations indicate that there is a 'cost' [$102,797 - ($50,288 + $182,091) - $129,582, or $.0032 per message) as a move to measured service. (Note: These expenses are fully recovered by usage rates.) Mr. WYDEN. Mr. Simon, the task force would like any opinions you have on local measured service in Chicago, New York, et cetera for the record from consumer groups. We are trying to collect all the information we can around the country. Ms. CLAYBROOK. In the State of Texas, Public Citizen has been active with some other organizations, and you are probably aware of the fact that that proposal was withdrawn. I would be pleased to submit information on Texas for your record. Mr. WYDEN. That would be very helpful. [See the appendix for additional information supplied by Public Citizen.] Mr. WYDEN. The toughest part about this has been to try to gather accurate information about how all these changes are affecting small businesses. Whether citizens agree with everything said here this morning is probably as important as the fact that all of you on the front lines are the ones who are gathering the data. So we welcome whatever you can send us, and all of that is very helpful. There is a tremendous information gap out there now, where we just don't have the facts. Mr. Skelton has been tenacious on this issue, by saying it is very hard for us to even know how we begin until we get information on fixed and nonfixed costs and experience in various States with local service. You perform a great service by getting us data and the viewpoints of individuals. Mr. LILLY. For your immediate attention, this is one of the areas that I left out, in the interest of time. I have firsthand knowledge of the circumstances surrounding the withdrawal of Southwestern Bell's proposal for local measured service in the news release, it was released by them that they were withdrawing this proposal on August 31, I believe. The public hearing on the merits of this proposal was scheduled for yesterday before the Public Utility Commission. That public hearing was obviously canceled. Southwestern Bell has appointed, or is in the process of appointing a panel of consumer interests to work with them on what might be acceptable pricing strategies and options. I guess I was privileged to be asked to serve as a member of that panel. They indicated maybe a half a dozen people, so maybe if I ever have a chance to appear before you again, I will have additional inside insights into some of these reasons for the request for drastic increases in rates in the future. I thought you might want to reflect that in the record, that we feel that we had achieved a major victory, and it was no undue pressure, other than just speaking out on this. To use their words, or the words of the Vice President, it was because of their well-organized, articulate and nonemotional testimony presented at these eight hearings in the State of Texas in opposition to local measured service that they thought it prudent, politically advisable or what have you, to pull down their request. Mr. WYDEN. Mr. Lilly, you make an interesting point, and I have to go back and check the record of the hearing in Kansas City, but I asked the representatives of Southwestern Bell at that hearing, whether they had any plans to go ahead with measured service in their service region, and they said no. I asked them why, and I remember to the best of my knowledge, being impressed with their answer. They said that there was no need to have mandatory measured service because the proposal could sell itself on its merits. For that reason, they were not going ahead with any mandatory measured service proposals. I remember being very impressed with their point. They were not going to require anything of the citizens from their region, but if someone wanted it, so be it, that was their option. Now, what you have said here in the last couple of minutes does not square with my best remembrance of what was said in Kansas City. I am going to go back and take a look at the record, and I appreciate your pointing that out. Mr. LILLY. The key, so I am not misinterpreted here, you flipped in another adjective to the local measured service, mandatory. Mr. WYDEN. I see. Mr. LILLY. This has been the corporate policy all along. Oh, we are just going to put this in optionally, which sets off the spiral, and the reason for drastic increases, measured service, and then flat rates start to come up on a spiral basis until they both wind up leveling off up here at tremendously high levels. Mr. WYDEN. I see. So what was withdrawn was a proposal in the region for optional? Mr. LILLY. Even optional measured service. Mr. WYDEN. I see. And you and your organization opposed that as well? Mr. LILLY. Even on an optional basis, considering the spiraling effect it would have on escalating residential rates, regardless of what you call them. Mr. WYDEN. That makes what happened in Kansas City square with what happened here. Mr. LILLY. This was one of the big selling points, to sell this concept and gain public support. Oh, it is just optional, you can take it or leave it. Mr. SIMON. We found that to be a particularly effective selling tool. Look at our chart. Most of the States that have recently gone to measured service have bought the idea about optional. There is a responsibility to reject even an optional service if it is not in the public interest, and LMS is not, whether optional or otherwise. Second, on the cascading effect, we studied the District of Columbia and testified before, we found the potential for this same cascading effect where more people at the margins would move from flat to the measured, and to emphasize a point, they claimed roughly 33 percent of the people would save, on average, 20 percent if they went to measured service. Sixty-seven percent, on average, would have paid 100 percent more if they went to measured service, and obviously, the goal, 30 percent to save 20 percent, but the rest that will eventually be on measured service, paying 100 percent more. Mr. WYDEN. Let's leave the record open on this issue of measured service, optional, as well, and any information you could give us would be helpful. [See appendix on additional information provided by Public Citizen and TRAC.] Mr. WYDEN. I have had a number of older people in my district come up to me and say they like the option. In other words, they wouldn't be an individual who would be in a position to need the telephone constantly. They would be making a small number of calls, and they have come to me and said, "Ron, we agree with you on this mandatory measured service proposal which we had then, but you are not going to do anything about taking away the option to do it." We are going to need some additional data and additional information. I understand your argument, Mr. Simon, that you feel once you make it optional, that that affects the whole revenue base, and what it is going to do for the system. I only ask for more information, because I think that the members, like myself, do hear from some consumers who say, we like the option as one of the alternatives. Mr. SIMON. You can still have a budget or economy rate service available without having to measure by the minute. Mr. WYDEN. That is a good point, and we may be talking about semantics here, what some people call budget may by other people be called something else. Mr. Lilly has already cleared up some confusion that was in my mind, based on the Kansas City hearing, as opposed to this one. Mr. KIMMELMAN. One other thing you may consider trying to find out: Is any phone company that wants to offer optional measured service also willing to put a cap on the flat rate service or a cap on what the difference would be between those service options. Individual consumers may benefit from measured service, but over the long run, we are worried about the aggregate effect, what is coming next, and the overall impact on the entire community. Mr. LILLY. The cap is a point very well taken. How many of them would be willing to extend that dotted line across those local measured service parts? Mr. WYDEN. I understand your argument about the cap. Somehow, this would create an automatic rate increase, and we will consider your suggestion, as we will consider all the suggestions made to the task force. I don't have to tell you that we are searching for practical, hardheaded suggestions that are going to pay off for small business, that we can use as we rewrite the Communications Act next year. Your suggestions are welcome. We will keep the record open for additional information. With that, the task force will stand recessed until 3 p.m. where we pick up on the issue of bypass. AFTERNOON SESSION Mr. WYDEN. Let's begin the afternoon session and I apologize to all of you for the delay in getting started. We very much appreciate your coming today and I have already read your testimony. It is excellent. In fact, I think one of the suggestions that was made to apply the principle of regulatory flexibility to try to reduce some of the paperwork that small telephone companies face is an excellent idea. We are going to try to get the FCC to do that. If they won't do it of their own accord, I plan to introduce legislation to get it done. You have offered us an excellent suggestion and we look forward to your testimony. Our first panel is going to deal with rural and small telephone company issues and our next panel will deal with the bypass. Let us begin with E. Bruce Hagen, North Dakota Public Service Commission, and we will make a prepared copy of your remarks part of the record, Mr. Hagen, and if you would just summarize your views, it might be helpful so we will have time for questions. TESTIMONY OF E. BRUCE HAGEN, PRESIDENT, NORTH DAKOTA PUBLIC SERVICE COMMISSION Mr. HAGEN. Thank you very much. I would like to first congratulate your task force for the study that you are going through and the hearings which have been very helpful I think now and for the future for the problems we see for telephone telecommunications service in rural areas. I hope—and I am sure I am speaking for all of NARUC and the commissioners in the United States-that we do hope you would continue, the committee would continue, this type of study on into the next session of Congress, because I think it is a very good idea. I do appreciate the invitation to appear today on behalf of the National Association of Regulatory Utility Commissioners, commonly called NARUC, and also my State of North Dakota, where I am a long-time farmer, to address the continuing need for universal service available at reasonable charges for all the rural areas in our State and the United States. I would like to also introduce Jill Roe, who is here with me as attorney for NARUC and, additionally, Tom Harris is here from Dickinson, ND. He is an excellent manager of the Consolidated Telephone Cooperative, one of the best I think in the country, and in addition, Kozar Roe, who is chairman of the board of Dixie Rural Telephone Co. and vice chairman of the State Cooperative Association. They are here. Wide open spaces are a characteristic of North Dakota. We have a total area of 70,702 square miles. With approximately 680,000 people, our State is one of the least populated in the Nation. I don't think you would be surprised to hear that 77 percent of the businesses in North Dakota have fewer than 10 employees and 90 percent of the businesses have fewer than 20 employees. The North Dakota average income is lower than the national average. Approximately 13 percent of those 65 years and over have incomes below poverty level. In a rural State a telephone, a good telephone system is essential to social, commercial, and agricultural activities. When comparing the telephone system in North Dakota with those of other States, it became obvious that the whole State could be considered rural in nature, yet despite the wide open spaces, our State has one of the finest telephone communications systems in the world. The service |