NCPA - National Center for Policy Analysis

An End To Subsidized Rural Phone Service?

August 30, 1999

Urban dwellers have for decades paid higher phone bills to subsidize service for rural callers. But that may soon be ending. The rise of competition in the $700 billion global telecommunications market -- coupled with the advent of the Internet and wireless telephone service -- may spell the death of the subsidized system.

  • Small rural phone companies will mainly feel the brunt -- since they receive up to 70 percent of their revenues from the subsidy system, compared to 40 percent for the regional Bell companies and GTE.
  • About 900 independent rural companies nationwide serve about four million of the nation's approximately 200 million phone lines.
  • The subsidies have been justified by the fact that it is cheaper to provide service in large, urban markets -- where more people share in the fixed costs of installing phone lines and other equipment -- than it is in rural areas, where fewer phones and longer distances increase those costs.
  • The nation's big long-distance companies say the subsidies account for about 40 percent of the price of a long- distance call.

The Federal Communications Commission, which regulates the industry, is expected to change the system in a multi-step process during the next two years.

Source: Steve Rosenbush, "Rural Calls at Crossroads," USA Today, August 30, 1999.


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