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.

Deceptive Billing Practices

shockIn case you haven’t looked close at your cable bill lately, there are likely a number of mysterious charges on it that look to be for something other than cable TV service. There was a day not too many years ago when a cable bill was simple. The bill would list the cable package you purchased as well as some sort of local franchise tax. There also might have been some line-item purchases if you bought pay-per-view movies or watched wrestling or other pay-per-view events.

But cable bills have gotten a lot more complicated because cable companies have been slyly introducing new charges on their bills in an effort to disguise the actual price of their basic cable packages. Here are a few of the charges I have heard about or seen on recent cable bills:

  • Broadcast TV Fee. This is a new fee where cable companies are putting some of the increases that they are having to pay for access to the broadcast networks of ABC, CBS, Fox and NBC. You can sympathize some with the cable operators on this fee since a decade ago cable companies got to carry these networks for free. But the network owners finally woke up to the fact that they could charge retransmission fees and since then the rates for carrying these networks has grown to roughly $2 per network, per customer, per month. But still, these fees ought to be part of basic cable, which is the smallest package that includes the core channels and that must be then carried with every other cable package.
  • Sports Programming Fees. It’s debatable whether sports programming or local retransmission fees have grown the most over the last decade. Certainly there was a day when there was only ESPN and a handful of other minor sports channels. But now cable systems are packed full of sports channels and each of them raises rates significantly every year to pass on the fees they pay to sports leagues to carry their content. The problem with starting a new fee to cover some of the increases in sports programming is that it clearly foists the cost of sports programming on everybody, when surveys show that a majority of customers are not very interested in sports outside of maybe the NFL.
  • Public Access Fee. In many cities the cable companies are required to carry channels that cover local government meetings and other local events. Other than having to reserve a slot on the cable system there is normally not much actual cost associated with these channels. So it’s incredibly cynical for a cable company to invent a fee to charge people to watch a channel that the cable company has agreed to carry, and for which they have very little cost.
  • Regulatory Recovery Fee. This one has me scratching my head since most cable companies are lightly regulated and pay very few taxes other than franchise fees, which they already put directly onto people’s bills. This fee seems to be pure deception to make people think they are paying taxes, when instead this is a fee that the cable company pockets.

Additionally, cable companies have recently really jacked up the cost of both settop boxes and cable modems. Interestingly, the actual cost of settop box cost at $80 – $100 has dropped over the last decade and continues to drop. It’s the same with cable modems. It’s hard to justify paying a monthly fee of up to $9 for a cable modem box that probably costs $80. Customers can theoretically opt out of both of these charges, but the large cable companies make it really hard to do so.

The idea of misnamed fees has been around for a while and started with telephone service. Starting back in 1984 the FCC allowed the telcos to migrate some of the charges that they used to bill to long distance companies for using the local loop to homes to a fee directly assessed on customers. Since then, telcos have had a separate fee called a Subscriber Line Charge, or an Access Fee, or sometimes an FCC Fee on their bills. But this was never a tax, as most customers assume, and the telco simply pockets this money as part of local rates. When the cable companies got into the voice business they largely copied this same fee, even though they never had to make the same shift of access revenues that created the charge. The FCC ought to do away with this fee entirely and require it be added to local rates where it belongs.

I think perhaps one of the reasons that the cable companies are so against Title II regulation is that these kinds of billing practices then come under FCC scrutiny. It’s hard to think of these various fees as anything other than outright deception and fraud. The companies that charge them are trying to be able to say in advertising that their rates are competitive, when in fact, by the time you add on the various ‘fees’, the actual cost for their products are much higher than what they advertise. I’m also surprised that the FTC has not gone after these fees since they are clearly intended to deceive the general public about what they are buying.

You might sympathize with the cable companies a little in that they have been bombarded year after year with huge increases in the cost of programming. But my sympathy for them evaporates once I look at the facts. When their programming costs go up each year they always raise their rates considerably more than the increased cost of programming and they use rate increases to increase their profit margin. Additionally, for the largest cable companies, part of those rate increases are for programming they own, such as the local sports networks.

We all know that the cost of cable is going to drive a lot of households to find a cheaper alternative, and when that happens the cable companies have to shoulder a lot of the blame. People might not understand the line items on their bill, but they know that the size of the check they write each year gets a lot bigger, and that is all that really matters.