FCC Halts Planned Rural Phone Rate Hike Amid Concerns of Consumer Choice and Affordability

stakeholders say that the rate floor has made basic voice service less affordable in some rural areas

FCC Halts Planned Rural Phone Rate Hike Amid Concerns of Consumer Choice and Affordability
Image: Pixabay
May 18, 2017

The Federal Communications Commission (FCC) has stopped a federally mandated rate increase for certain rural phone customers, pending review of an FCC policy known as the "rate floor."

The FCC froze the current minimum rate for local voice services at $18 per month for customers of companies that receive support from the FCC's universal service program. That minimum rate—or rate floor—was scheduled to rise to $20 on July 1 of this year, and to $22 on July 1, 2018.

The FCC says that the freeze will stay in effect until the agency reviews its rate floor policy, or no more than two years. The review was launched by the FCC in a Notice of Proposed Rulemaking seeking comment on the policy.

In rural areas where the cost of providing service is high, phone company revenues come from three primary sources: customer rates, subsidies from the Universal Service Fund to keep those rates affordable, and intercarrier payments from long-distance providers. In 2011, the FCC set a rate floor for local voice services based on a national average. Carriers that do not charge their customers at least the rate floor amount are penalized with a loss of universal service funding.

However, stakeholders ranging from the AARP to the National Tribal Telecommunications Association to small, rural telephone companies have argued that the rate floor has made basic voice service less affordable in some rural areas—resulting in rural rates that are higher than in some urban areas, limited consumer choice, and slowed broadband deployment.

In response to these concerns, the FCC is seeking public comment on whether the rate floor has met its intended purposes, whether changes should be made to the current rate floor methodology, or whether it should be eliminated entirely. More generally, the FCC is seeking comment on the costs and benefits of the rate floor.