FCC to Eliminate the Subscriber Line Charge?

In WC Docket 20-71 the FCC is considering eliminating the Subscriber Line Charge (SLC). The SLC has been around since 1984. The FCC at that time wanted to lower the cost of long-distance. It was not unusual at that time to have long-distance rates as high as $0.30 per minute with the average long-distance rate in the country somewhere between $0.12 and $0.15 per minute. The FCC understood that high long-distance rates were hurting the country and they wanted to lower the fees that local telcos charged to long-distance companies like the newly formed AT&T long-distance company, MCI, and other competitive long-distance providers.

The FCC only had jurisdiction over Interstate rates. In those days every regulated telephone company calculated jurisdictional costs using Part 67 of the FCC rules. Companies performed ‘separation’ cost studies to determine the portion of the costs that were associated with local service, state long-distance service, and interstate long-distance service. In 1983 the FCC approved Part 69 which created access charges – specific interstate rates that local telephone companies were allowed to charge to long-distance carriers to use the local telephone network for originating or terminating an interstate long-distance call.

As part of the creation of access charges, the FCC decided to arbitrarily shift some Interstate costs from long-distance carriers to telephone subscribers – this was the start of the Subscriber Line Charge (SLC). In that first year, the FCC shifted $1 from Interstate costs to the fee charged to every telephone subscriber. The SLC was raised annually until it reached $4.50. Over time the FCC eventually increased the fee to as much as $6.50. The SLC is still an FCC access charge, but it is billed to end-user customers and not to long-distance carriers. Theoretically, this means that every telephone subscriber is paying $6.50 for the right to make or receive long-distance calls – even if they don’t use that right.

The FCC’s actions had the desired effect, and long-distance rates dropped annually. This was a big deal for homes and businesses. I remember as a kid when making a long-distance call was a big deal, since a 7 to 10-minute call cost a dollar. Long-distance rates got cheaper until eventually, we have cellphones and local phones that come with unlimited long distance.

I remember working for a holding company of small telcos after divestiture and everybody was concerned that raising local rates a dollar per month was going to cause customers to drop phone service. I don’t think we lost any customers from the first local rate increase, or in subsequent years as the SLC continued to be increased. Customers applauded the cheaper long-distance rates.

The SLC has caused confusion over the years. A lot of customers have assumed the SLC is a tax – but the amount is billed and kept by the telephone company. The real confusion started after the Telecommunications Act of 1996 that allowed competitive local exchange carriers (CLECs) to compete with local telephone companies. CLECs didn’t have a clear way to set competitive rates. For example, if a CLEC was competing against a telco with $20 local rates, that telco might also have had a SLC charge of $6. That means the true local rate was $26. If the CLEC wanted to give a modest discount and charge $23, they had a dilemma. While a $23 rate was a good deal for customers, it didn’t compare well against the $20 base telephone rate that was charged before adding the SLC. Most CLECs elected to break their local rate into two parts to match the separate local rate and the SLC charged by the telcos. In this example, a CLEC might have set a $17 local rate and kept the $6 separate rate.

CLECs were not authorized to bill the SLC charge because they were not subject to the same jurisdictional separations of costs. Instead, CLECs just split local rates into two pieces to try to match telco rates. Many CLECs tried to make their version of the SLC charge sound like a tax by calling it the ‘FCC Fee’ or some similar name. The FCC made a few CLECs change the name of the fee, but mostly the FCC ignored how CLECs billed, and many customers have long believed that the SLC fee was a tax and not part of local rates.

It was inevitable that the FCC would finally end the SLC – the need for it is long over. However, for local telephone companies, the SLC has part of the basic rate for telephone service. If the FCC eliminates the SLC, most telcos cannot automatically add the lost revenue back to local rates. As hard as it might be to believe today, many telcos are still under state regulation of rates and would need permission from a state regulator to add the lost SLC fee to local rates. I predict that many state commissions will deny a local rate increase, or at least make telcos jump through a lot of hoops to get it. Local telephone regulation is largely dead, but this would give state regulators perhaps their last chance to feel relevant for local telephone rates.

Meanwhile, CLECs that decided to charge the SLC can instead just add the lost amount to their base rate. The FCC has made it clear in this docket that once approved, no company is to bill a line item that could be construed to be the SLC. The chances are that anybody that still has a landline from a telco, including numerous businesses, will see a rate reduction by as much as $6.50 per telephone line per month. Telcos will likely just see revenues drop as they lose the SLC fee and aren’t able to replace it.

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