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“Continuing surveillance”. FCC didn’t really rate regulate AT&T during this period; all done through informal negotiations AT&T made voluntary reductions in interstate long-distance rates of $30 million per year

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Presentation Transcript
Continuing surveillance l.jpg
“Continuing surveillance”

  • FCC didn’t really rate regulate AT&T during this period; all done through informal negotiations

  • AT&T made voluntary reductions in interstate long-distance rates of $30 million per year

    • Result of generally falling prices and technological progress—not because of FCC action

  • FCC able to take credit for continually lower prices on long distance charges with no full-scale rate investigation until the 1960’s


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A regulatory problem

  • State toll rates were going up, while Interstate toll rates were going down (by 1949, state rates about 35% higher than interstate)

    • Local Bells asking for rate increases

    • State commissions increasing toll, not local rates

    • Fear that the FCC would look more effective than the state commissions


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The answer?

  • Separations

    • The allocation of local telephone company costs between state and interstate jurisdictions

    • Keep in mind—

      • The more costs allocated to a jurisdiction, the better the justification to raise rates in that jurisdiction

      • There are many joint costs involved in the provision of telephone service

  • The challenge: how to get everyone to agree on how to do separations


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Splitting up the baby

  • Smith v. Illinois Bell Tel. Co. (1930)

    • “The proper regulation of rates can be had only by maintaining the limits of state and federal jurisdiction . . .” While the difficulty in making an exact apportionment of the property is apparent, and extreme nicety is not required, only reasonable measures being essential . . . It is quite another matter to ignore altogether the actual uses to which the property is put. . . . Unless an apportionment is made, the intrastate service to which the exchange property is allocated will bear an undue burden . . .”


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Effect of Smith v. Illinois

  • From board-to-board

  • To station-to-station


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The positions of the various interests

  • The state commissions

    • Split between station-to-station or board-to-board

      • Why??

  • The FCC

    • Wanted long distance rates to decrease, but getting increasing pressure from the states

  • AT&T

    • Started from a board-to-board position, shifted to station-to-station

      • Why??


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The development of separations

  • Separations Manual of 1947

    • How-to manual, not officially adopted by the FCC, but no objection to its use

    • $19 million transfer of costs from state to interstate

      • Didn’t result in lower local rates

      • Stopped a planned interstate rate decrease


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Long process of shifting costs to interstate

  • The history of Subscriber Line Use (SLU)

    • Growth in SLU from 2.5% to 8.1% by 1980

    • Allocation from actual (2.5%) to 26% by 1980


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Jurisdictional Separations

  • This is the method for allocating the cost of a telephone company’s assets and expenses between the interstate and the state jurisdiction

  • This is a complex, multi-step process that starts with how the books of the telephone company are kept.

  • The following examples explains how the cost of a local loop (the connection between the customer and the switching office) is jurisdictionally separated


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Part 32 of the FCC Rules:

  • The Chart of Accounts

    • VERY specific rules about what the specific accounts are and what gets booked into each account

    • Ex: Account 32.2410 Cable and Wire Facilities

    • Account 32.6410 Cable and Wire Facilities Expense


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Part 36 of the FCC Rules

  • Jurisdictional Separations Procedures

    • Categorization of Assets

      • Based on engineering records

    • Ex: Categories of Cable and Wire Facilities

      • Category 1: Exchange Line (loop plant)

      • Category 2: Exchange Trunk (between switching offices)


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More of Part 36

  • Apportionment Procedures

  • For Category 1: Exchange Line (loop plant)

    • Determine number of working loops by subcategories

      • dedicated lines versus subscriber lines

    • Calculate an average cost per loop

      • Take total exchange line cost and divide by number of working loops


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And more of Part 36

  • Allocation to state or interstate jurisdiction

    • Determine total subscriber line loop costs

      • Multiply average cost per working loop times number of subscriber line loops

    • Multiply the total subscriber line loop costs by an interstate usage factor


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An example

  • Account 32.2410 $1,500,000

  • Category 1: Exchange Line = $1,000,000

  • Total working loops = 10,000

  • Average loop cost is $100

    • $1,000,000/10,000

  • Subscriber line working loops = 9,000

  • Total subscriber line loop costs =$900,000

    • 9,000 x $100


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More of the example

  • Assume usage is 12% interstate

    • 12% of total traffic is interstate

  • Allocation of subscriber loop costs to the interstate jurisdiction is $108,000

    • 12% times $900,000


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Why is this important?

  • This means that $108,000 will not have to be recovered from local rates or from state toll rates—especially from local rates!!


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