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Consumers have seen the cost of their telephone service drop for years. As a result, many consumers pay about the same amount every month but have new features like caller identification and make more calls – both local and long-distance – every month.
Yesterday the Federal Communications Commission (FCC) approved a plan to significantly reduce the rates charged by one firm to another for passing telephone calls between networks. Under this plan, these access charges will be reduced by $3.2 billion. The plan was developed by a coalition of telecommunications carriers that represent many – but not all – parts of the telephone business in America. The coalition plan – referred to by its acronym, CALLS – is not perfect in any respect but it does move in the right direction.
CSE Foundation filed a letter with the FCC in support of the principles that guide the CALLS proposal. On March 31 we wrote:
"Price setting for the access fees on either the originating or terminating end of a long-distance telephone call is arbitrary. The type of institution used to determine prices, such as a government agency or legislature, does not affect this fact. The dynamic forces of a market should determine prices. Negotiated agreements between buyers and sellers of various services – like access to local or long-distance telephone networks – is one way for market forces to be introduced to the historically over-regulated communications marketplace."
As a result of the FCC action, telephone rates will go down for many consumers. More importantly, the prices paid by consumers likely will be much closer to the costs incurred by providers for the services offered. And, in accordance with the 1996 Telecommunications Act, at least $650 million of hidden subsidies will now be out in the open. While it is harmful to the marketplace to have the subsidies, it is much better to have them out in the open.