Telephone Bills: Charges on Local Phone Bills

CRS Report for Congress
Telephone Bills:
Charges on Local Telephone Bills
Updated January 6, 2005
James R. Riehl
Information Research Specialist
Information Research Division

Congressional Research Service ˜ The Library of Congress

Telephone Bills:
Charges on Local Telephone Bills
Telephone bills are becoming more and more complex and such change and
complexity occasion congressional and regulatory attention as well as constituent
requests for explanation of new charges on their bills. As local telephone companies
provide additional caller services and continue to act as billing agents for long-
distance and information service providers, a customer’s local bill can include
charges for myriad options that did not exist a few years ago. Bills may now contain
charges labeled federal subscriber line charge, presubscribed interexchange carrier
charge, “national access fee,” “carrier line charge,” “federal universal service
charge,” or local telephone number portability. In addition, customers may now
receive bills for different telecommunications services from different
telecommunications service providers.
In the past, long-distance companies usually billed business customers directly
and residential customers through a local phone company. Recently, long-distance
companies have begun billing residential customers directly. One bill has become
two. Cellular telephone and personal communications services (PCS) providers,
competitive local exchange carriers (CLEC), and paging companies usually send bills
directly to the consumer. Some cable television companies are providing local
telephone service, and those charges may appear on a cable bill.
Although surveys show that consumers prefer one readable and understandable
bill, there is no federal regulation or law that dictates the layout or wording that is
used on bills. This report lists and describes the possible basic charges that
commonly appear on most local service telephone bills and discusses the practice of
“cramming,” the appearance of unauthorized and possibly illegal charges on
telephone bills. An overview of various actions by the Federal Communications
Commission (FCC) is also provided.
This report will be updated as events warrant.

Telephone Companies..........................................1
Coalition for Affordable Local and Long-Distance Services (CALLS)....1
Access Charges...............................................2
Subscriber Line Charge (SLC)................................2
2002 and 2003 Increases in the Subscriber Line Charge............3
Presubscribed Interexchange Carrier Charge (PICC)..............4
Other CALLS Provisions....................................5
Truth-in-Billing and Billing Format...............................7
Deniable and Non-deniable Charges...........................8
Charges on Local Telephone Bills.................................9
Local Telephone Service....................................9
Directory Assistance Charges...............................11
Inside Wiring............................................11
Toll Calls...............................................12
In-State Connection Fee....................................12
Regulatory Assessment Fee.................................12
J amming ................................................12
Sliding .................................................13
Miscellaneous Caller Services...............................13
Long-Distance Services....................................13
Single Bill Fees..........................................14
Slamming ...............................................15
Minimum Use Fees.......................................15
Internet Access and Long-Distance Charges
(Reciprocal Compensation).............................16
Federal Telephone Excise Tax...............................18
Excise Tax on Frequent Flier Miles...........................18
Local Number Portability (LNP).............................19
Wireless Local Number Portability...........................20
Universal Service.........................................20
2003 Changes in Universal Service Fees on Phone Bills..........22
Local Taxes.............................................23
Property Taxes...........................................23
Interstate Tax Surcharge...................................23
911 Charges.............................................23
Relay Center Surcharges...................................23
Cramming ..............................................24
Internet Cramming........................................24
Charges on Wireless Telephone Bills.............................25
Bundling of Services..........................................26
Federal Communications Commission............................26
National Association of Regulatory Utility Commissioners............27

List of Tables
Table 1. Average Residential Rates for Local Service in Urban Areas,
1997-2003 ..................................................10
Table 2. Average Local Rates for Businesses with a Single Line in
Urban Areas, 1997-2003.......................................10
Table 3. Average Household Expenditure for Telephone Service
(All Households), 1996-2002....................................11
Table 4. Universal Service Quarterly Contribution Factors................22

Telephone Bills:
Charges on Local Telephone Bills
Telephone Companies
According to estimates of the Federal Communications Commission (FCC),
there are over 2,100 companies that provide some type of local telephone service and
over 1,000 companies that provide some type of long-distance telephone service in1
the United States. There may be almost that many ways of presenting a telephone
bill to a customer. The FCC does not dictate the form or wording of a telephone bill.
State public utility commissions, the entities that oversee telephone industry
regulation within each state, generally do not try to control form and wording of
telephone bills either. A collection of FCC Fact Sheets concerning various telephone
industry issues is available at []
and also at [].
Coalition for Affordable Local and Long-Distance
Services (CALLS)
In August 1999, six of the largest phone companies (AT&T, Sprint, Bell
Atlantic, BellSouth, SBC, and GTE) announced an industry plan to substantially
revise the complicated system of telephone access charges,2 which include the
subscriber line charge (SLC, see the section Subscriber Line Charge) and the
presubscribed interexchange carrier charge (PICC, see the section Presubscribed
Interexchange Carrier Charge). The plan, referred to as CALLS, was modified by the
coalition of phone companies after criticism from the FCC and consumer groups.
The FCC adopted the main provisions of this five-year access reform plan on an
interim mandatory basis on May 31, 2000.3 The access charge rate structure is
mandatory for all major local phone companies with certain rate level components
being mandatory on an interim basis. The mandatory nature of the plan has been
criticized by some companies who do not believe that the plan does enough to
guarantee affordable local telephone service in rural, high-cost areas. The plan
permits some companies to opt out after the first year. Those who opt out will be

1 U.S. Federal Communications Commission, Statistics of Communications Common
Carriers, 2002/2003 Preliminary edition, Washington, 2003, p. 212. Available via the FCC
website at [].
2 Access charges are the fees that long-distance companies pay to local telephone companies
for access to the local phone network.
3 U.S. Federal Communications Commission, In the Matter of Access Charge Reform...,
FCC 00-193, adopted May 31, 2000, released May 31, 2000. Available via the FCC website
at [].

subject to special cost studies. Some major long-distance and local telephone
companies that were not parties to the proposal and certain consumer groups have
criticized the plan. US West, recently acquired by Qwest and the only large local
phone company that did not agree to the CALLS plan, and the National Association
of State Utility Consumer Advocates (NASUCA) both filed petitions in court for
review of aspects of the CALLS plan. US West believed the plan was “arbitrary,
capricious and otherwise contrary to law.” NASUCA representatives stated that the
plan would actually raise phone bills. On September 19, 2000, Qwest altered its
position concerning CALLS and agreed to carry out its provisions. Qwest also
announced that it would drop various lawsuits that it had filed and would review
Access Charges
Subscriber Line Charge (SLC). The subscriber line charge is a federally
regulated charge that first appeared on phone bills following the divestiture of the
American Telephone & Telegraph Company (AT&T) in 1984. It is also referred to
as an “access charge” and is intended to allow local telephone companies to recover
some of the fixed costs (telephone wires, poles, and other facilities) of connecting
phone customers to the interstate long-distance network. When a customer makes
an interstate long-distance call, in the vast majority of cases he/she must use a local
phone company’s network to connect to the long-distance network. Access charges
are paid to local telephone companies by both the end user (business or residential
customers) and the long-distance company carrying a long-distance call. The SLC
paid by end users appears on a bill as a specific itemized charge. The long-distance
company that carries an individual long-distance call pays access charges to both the
local phone company originating the call and the one terminating the call. The access
charges paid by the long-distance carriers do not appear on a telephone bill. Over the
past few years, the FCC reduced the amount of access charges paid by long-distance
companies. Access charges are kept by the local phone companies. They are not
forwarded to the federal government. Information on the subscriber line charge is
provided at the FCC website [].
In conjunction with decisions related to the implementation of the
Telecommunications Act of 1996, the FCC revised the SLC for residential and
business customers with more than one telephone line, although SLC charges for
customers with a single line did not change. In most cases, until the CALLS
revisions, the SLC for a primary residential line was $3.50 per month. Any
additional residential lines are considered non-primary lines. The SLC for non-
primary lines was capped at $5 per line per month through 1998. Starting in 1999,
the SLC for non-primary residential lines was adjusted for inflation and increased $1.
It was capped at $6.07. However, this did not mean that all non-primary lines
incurred a $6.07 charge on a telephone bill. If the local telephone company’s average
interstate costs of providing that line were less than $6.07, it could only charge the
actual amount of its costs to a consumer.
CALLS Revisions of the SLC. As of July 1, 2000, the SLC and PICC for
residential and single line businesses were consolidated into a new SLC. The PICC
charge was eliminated as a separate charge. The new primary line residential and
single-line business SLC was capped at $4.35 per month and on July 1, 2001, rose

to $5. Under this plan, the cap was scheduled to rise to $6 on July 1, 2002, and to
$6.50 on July 1, 2003. The increases after 2001 are subject to FCC validation. The
FCC noted that, for the first year, the new single SLC charge was lower than the
separate SLC and PICC charges combined.
The SLC cap for residential customers and single-line businesses remained at
$3.50 for smaller local telephone companies (approximately 1,300 carriers providing
service to less than 10% of total telephone access lines). On October 11, 2001, the
FCC adopted an order to reform these charges also.4 In this order, referred to as the
MAG (Multi-Association Group) Plan, the SLC caps for the smaller carriers were
increased to the same levels paid by most other telephone subscribers. As of January

1, 2002, the SLC cap for residential and single-line businesses increased to $5.

Beyond that date, the FCC conducted cost review studies, and increased to $6 on July

1, 2002, and to $6.50 on July 1, 2003.

2002 and 2003 Increases in the Subscriber Line Charge. On June
5, 2002, the FCC, following a cost review proceeding, determined that the
scheduled increases in the subscriber line charge were appropriate and necessary5
to fulfill the commission’s access charge reform plans. As a result, on July 1,
2002, the subscriber line charge cap for residential and single-line business
customers increased to $6 and increased again to $6.50 on July 1, 2003. The FCC
noted that raising the cap does not mean that all customers will necessarily see a
charge at the cap level on their bill. If a phone company’s cost of providing the
line is less than the cap, it may only recover that actual cost. The cap is the
maximum charge that may appear on a bill and applies to all carriers. In order to
ensure the affordability of phone service for low-income consumers, the FCC
expanded the Lifeline support program, part of the universal service mechanism,
to cover the full amount of SLC charges.
Under the CALLS plan, non-primary line residential (two or more lines in the
home) SLC charges were increased and capped at $7 beginning July 1, 2000. The
charge will remain at this level for five years. However, if the telephone company’s
average interstate costs of providing the line are less than $7, it may only charge the
customer the amount of its costs. Not all non-primary residential lines will be
charged at the $7 cap. Prior to the implementation of CALLS, this charge was
capped at $6.07, but was scheduled to increase by $1 plus an amount for inflation on
July 1, 2000.

4 U.S. Federal Communications Commission, In the Matter of Multi-Association Group
Plan for Regulation of Interstate Services of Non-Price Cap Incumbent Local Exchange
Carriers and Interexchange Carriers, FCC 01-304, adopted Oct. 11, 2001, released Nov.

8, 2001. Available via the FCC website at [].

5 U.S. Federal Communications Commission, In the Matter of Cost Review Proceeding for
Residential and Single-Line Business Subscriber Line Charge (SLC) Caps, FCC 02-161,
adopted June 4, 2002, released June 5, 2002. Available via the FCC website at
[ h t t p : / / www.f c c . go v] .

In the MAG Plan, the FCC adopted the MAG proposal to apply the same SLC
caps to primary and non-primary residential lines of the smaller carriers. The FCC
stated that several commenters in this proceeding indicated that higher SLC rates for
non-primary lines would limit the growth of these lines, which are often used for
advanced telecommunications services and are an important source of revenue for the
smaller carriers.
Prior to CALLS, the maximum SLC for businesses with multiple lines was $9
per line per month through 1998. In 1999, the multiple line business SLC was
adjusted for inflation and increased to $9.20 per line. This charge was adjusted for
inflation annually. As with the residential SLC, local phone companies could only
recover their costs. Thus, business customers with multiple lines did not necessarily
see a $9.20 charge for each line. The amount could be less, and according to the
FCC, the average SLC for businesses with multiple lines was $7.17. As a result of
the adoption of the MAG Plan order, the multiple line SLC cap for smaller carriers
increased to $9.20 on January 1, 2002.
Multiple line businesses will not see a consolidation of the PICC and SLC
charges. Under the CALLS plan, the multiple line business PICC is capped at $4.31
(its pre-CALLS cap) and will be reduced and eliminated in most areas over the next
several years (or sooner). The multiple line business SLC will be frozen for five
years. For business customers of the largest local phone companies, the SLC charge
is $9.20 or the company’s average interstate cost of providing the line in that state,
whichever is less. Multiple line business customers of the smaller local telephone
companies will be charged $6 or the cost of providing the line in that state, whichever
is less. The FCC plans to reevaluate the multiple line business charges at the end of
the five-year period covered by the CALLS plan.
The presence of a cap does not mean that every customer will be charged that
specific amount on their bill. The cap is the maximum charge that may appear. The
actual charge on an individual phone bill may be lower than the cap.
Presubscribed Interexchange Carrier Charge (PICC). The PICC began
appearing on telephone bills in January 1998. It was a flat-rate per-line charge that
long-distance companies paid to local telephone companies. It was charged in
addition to the SLC, because the FCC determined that the SLC did not allow local
phone companies to recover all of the fixed costs associated with the interstate
portion of the local loop. The FCC set PICC charges as ceilings, not absolute rates,
and thus specific PICCs varied from state to state depending upon the costs of
providing service within the state. The charge could be assessed for all telephone
lines regardless of whether a business or residential customer had actually selected
(presubscribed) a specific long-distance company.
As of July 1, 1999, the PICC for primary residential lines and businesses with
a single line was capped at $1.04 per month, up from $0.53 in 1998. The primary
line and single line business PICC was adjusted annually for inflation and increased
by $0.50. Through June 30, 2000, the maximum PICC charge for non-primary
residential lines was $2.53 per line per month, up from $1.50 in 1998. The cap for
business customers with multiple phone lines was raised to $4.31 per line per month,
up from $2.75 in 1998. The multiple business line PICC ceiling could be adjusted

for inflation and increased, if necessary, by approximately $1.50 per year. As with
the residential and single-line business PICC, the FCC estimated that, as its plans
were implemented, PICC charges would decrease and eventually reach zero in many
Long-distance companies took various approaches to including or not including
PICC charges on phone bills. In some cases, the charges appeared as an itemized line
on a bill, but they also may have been lumped in with other charges and labeled
“national access fee” or “carrier line charge.” The FCC did not order long-distance
companies to present PICC charges in a specific way, nor did the FCC order the
companies to charge the customer directly for PICC charges. The FCC stated that
its reductions in access charges which the long-distance companies pay to local
phone companies largely offset any increases in per-line or other charges, making
them revenue-neutral. Some long-distance companies chose to recover all or part of
the PICC charges from their customers and stated that they had to do so because their
costs rose and the FCC reductions in access charges were not enough and had already
been passed on to customers. Long-distance companies requested further reductions
of these charges.
CALLS Revisions of the PICC. Under the CALLS plan, on July 1, 2000,
the PICC charge was eliminated as a separate charge for residential and single line
business customers. The PICC and SLC (see section “Subscriber Line Charge”) were
consolidated into a single, new SLC charge. However, multiple line businesses will
not see a consolidation of the PICC and SLC charges. The multiple line business
PICC will be capped at $4.31 (its pre-CALLS cap) and will be reduced and
eliminated in most areas over the next several years (or sooner). As with SLC caps,
the presence of a PICC cap does not mean that all customers will be charged at the
cap rate. The specific charge may be less than the cap and must be based on the
actual cost of providing phone service in each area.
Other CALLS Provisions. Overall, according to the FCC, this action will
simplify charges and reduce the fees appearing on monthly bills, especially for low-
volume residential and business users. Due to the wide variety of billing formats, the
different fees on telephone bills, charges attached to different calling plans, and the
volume of calls a customer makes, it is not possible to state that any particular bill
will decrease by a specific amount or percent. The FCC has stated, however, that
low-volume users (30 minutes or less of long-distance calling per month) may save
between $10 and $50 per year. Various observers believe it is even more difficult to
quantify savings for heavy users of long-distance services. In addition, this action by
the FCC may result in an increase in local and long-distance competition and further
reductions in long-distance charges.
According to the FCC, some of the major consumer benefits of the CALLS plan
are as follows:
!the elimination of the residential and single line business PICC. The
multiple line business PICC will be reduced over time and
eliminated in some areas.

!a $3.2 billion reduction in access charges paid by long-distance
companies to local phone companies.
Although major long-distance companies have agreed to pass these savings on
to their customers over the five-year life of the CALLS plan, some consumer groups
and analysts question whether all of the savings would actually reach consumers, and
when. The government cannot force the companies to pass on the savings. It is not
clear at this time whether per minute charges for long-distance calling will fall.
!availability of at least one long-distance plan (to AT&T and Sprint
customers) that does not have a monthly minimum use charge.
Monthly minimum use fees (see the section “Minimum Use Fees”) of
approximately $3 per month have been charged by some long-distance carriers to
customers who do not make large volumes of long-distance calls. Although this plan
does not abolish the use of minimum monthly fees and the FCC did not reach the
conclusion that such flat fees were unreasonable, inequitable, or inconsistent with the
Communications Act, companies agreed to eliminate or make avoidable some of
these fees.
As part of the CALLS proposal, AT&T and Sprint agreed to make long-distance
plans available that would address the needs of low-volume users. Also, members
of the coalition agreed to work with the Consumer Information Bureau at the FCC
to develop a consumer education plan. The plan will address important issues
relating to long-distance and local phone service pricing and service. In addition, the
CALLS companies will create programs and materials to assist consumers in
understanding their telephone bills. In order to reach the maximum number of
consumers, the materials must be available in various formats and languages. Within
90 days of publication of provisions of the Order in the Federal Register, CALLS
companies had to submit a compliance statement relating to their consumer education
plan to the FCC.6 Education efforts must continue over the five-year life of the plan.
A report was filed with the FCC on September 19, 2000.
As part of the education effort, the CALLS member companies established
websites to provide phone bill assistance and other information to consumers. See
[] .
!identification of $650 million in implicit universal service support
and establishment of an explicit universal service support
mechanism to replace the implicit support.
According to the FCC, phone companies were collecting approximately $650
million in universal service (see the section “Universal Service”) support for high-
cost customers through their access charges. Under the new rules, this money is
removed from access charges and replaced with an assessment on all
telecommunications carriers’ interstate revenues. The money will be placed in a new
universal service mechanism (separate from the existing high-cost fund) and made

6 Federal Register, June 21, 2000, pp. 38684-38704.

available to any carrier serving customers in high-cost areas. This new mechanism
is capped at $650 million and is targeted to density zones and study areas that have
the greatest need for it. As of July 1, 2000, price cap local phone companies must
create a separate line item to recover all contributions to the universal service support
For more information on the CALLS plan and its provisions, consult the FCC
website at [] or contact them at
Federal Communications Commission
Consumer and Governmental Affairs Bureau
445 Twelfth Street, SW
Washington, DC 20554
Call toll free: 1-888-CALL-FCC (1-888-225-5322)
Truth-in-Billing and Billing Format
On September 17, 1998, the FCC adopted a Notice of Proposed Rulemaking
addressing the issue of the clarity of telephone bills.7 The three main proposals of the
rulemaking were as follows:
!Telephone bills should be clearly organized and highlight any new
charges or changes to consumers’ services;
!Telephone bills should contain full and non-misleading descriptions
of all charges and clear identification of the service provider
responsible for each charge; and
!Telephone bills should contain clear and conspicuous disclosure of
any information consumers need to make inquiries about charges.
The FCC received over 60,000 consumer inquiries concerning telephone bills
in 1998. On April 15, 1999, the FCC issued an Order generally adopting the
proposed principles and minimal, basic guidelines to help consumers understand their
telephone bills.8 The guidelines adopted implement three basic principles.
Consumers should know:
!who is asking them to pay for service;
!what services they are being asked to pay for; and
!where they can call to obtain additional information about the
charges appearing on their telephone bill.
The FCC chose to adopt broad, binding principles instead of detailed rules that
would rigidly control all of the wording and the format of a telephone bill. Thus,

7 Federal Register, Oct. 14, 1998, pp. 55077-55083.
8 U.S. Federal Communications Commission, In the Matter of Truth-in-Billing and Billing
Format, First Report and Order and Further Notice of Proposed Rulemaking, CC Docket 98-
170, FCC 99-72, adopted Apr. 15, 1999, released May 11, 1999. Available via the FCC
website at [].

telephone companies have wide latitude to satisfy the adopted principles in a way that
serves the needs of the carrier and the customer. In its Order, the FCC states that:
We incorporate these principles and guidelines into the Commission’s rules,
because we intend for these obligations to be enforceable to the same degree as
other rules. Thus, while we provide carriers flexibility in their compliance, we
fully expect them to meet their obligation to provide customers with the accurate
and meaningful information contemplated by these principles.
Deniable and Non-deniable Charges. The Truth-in-Billing Order also
requires companies to identify charges on a customer’s bill that are “deniable” and
“non-deniable.” Generally, deniable charges are those that, if not paid, may result in
the termination (denial) of a customer’s local telephone service. Non-deniable
charges are those that, if not paid, will not result in termination of the customer’s
local telephone service. No specific format on a bill is required, although deniable
and non-deniable charges must be clearly and conspicuously identified. In addition,
carriers are free to choose other methods of informing consumers about charges that
may be contested. State laws may also address this issue.
The FCC views identification of charges into these two categories as protecting
consumers from paying questionable, unauthorized charges out of fear of having their
local telephone service disconnected. However, this guideline applies only to
companies who include both categories of charges on a single bill. Companies that
bill directly for a service that includes no basic local telephone service would not be
covered. For example, customers being billed directly by a wireless telephone
company for only wireless service would not have charges for wired basic local
telephone service on their bills. Although not paying charges on the wireless bill
would have no effect on their at-home wired service, non-payment of the wireless bill
may result in termination of their wireless service.
Essentially, customers should not conclude that every bill for a telephone service
has both deniable and non-deniable charges on it. Prior to withholding payment for
any charge on a bill, a customer should verify the status of the charge with the billing
After reviewing petitions for reconsideration relating to truth-in-billing and
billing format, the FCC on March 29, 2000, released an Order on Reconsideration
that reaffirmed the requirement that telephone bills highlight new service providers
and prominently display a contact number for inquiries. This requirement is intended
to act as a deterrent to slamming and cramming by allowing consumers to more
easily identify changes in providers on their bills. The rule does not cover services
provided on a per-transaction basis like directory assistance. Changes in a
customer’s local or long-distance company would be covered.9
The Order also adopted proposals to require carriers to use standard industry-
wide language and clear descriptions for line item charges identified as resulting from
federal regulatory activity. The FCC felt that current presentations of these charges

9 Federal Register, July 13, 2000, pp. 43251-43258.

on telephone bills are misleading, inaccurate, and confusing. As a result, through a
proceeding announced in the Federal Register, the FCC will seek comment from
consumer and industry groups concerning standard labels for these charges.10
Finally, carriers must prominently display on each bill a toll-free number (or
numbers) that customers may use to inquire about or dispute any charge on their bill.
Provisions of this Order not subject to further rulemakings become effective 30
days after the publication of notice of the effective date in the Federal Register. That
notice was published in the October 12, 1999 Federal Register on pages 55163-
55164. All other principles and guidelines adopted in the Order became effective on
November 12, 1999.11
The FCC provides consumer information on truth-in-billing, charges on telephone
bills, and other telephone issues at their website. See [
cgb/phonebills/samplePhonebill.html], [],
and [].
Complaints concerning telephone service may be filed via the FCC website at
[ h ttp://] .
State regulatory authorities may also address telephone billing formats and
customer service practices of telephone companies operating in their state.
Charges on Local Telephone Bills
Local Telephone Service. This is the basic amount that a customer pays for
local dialing service, not including any taxes or additional services. State public
utility commissions regulate this charge, not the FCC. For links to state public utility
commissions, see the National Association of Regulatory Commissioners website at
[ h ttp:// displaycommon.cfm? an=15] .
The geographic size of a local dialing area and the structure of local dialing service
packages vary from company to company and from state to state. Typically, customers
may have local telephone service that allows an unlimited number of calls within their
local dialing area for a flat monthly fee or a service package that allows up to a specific
number of local calls during any one month. If a customer exceeds that number of calls,
the extra calls are subject to additional charges. Usually, the various local telephone
service plans are summarized in the front section of the white pages of a telephone book.
In many cases, companies providing local telephone service list the individual
component charges that are included in the fee a customer pays for local service.
Questions concerning any of these components or the fees charged for each component
should be addressed to the company providing local phone service or the state public
utility commission. The FCC does not establish or regulate local plan prices or

10 Federal Register, June 25, 1999, pp. 34499-34501.
11 A summary of this Order was published in the Federal Register on June 25, 1999, on
pages 34488-34498.

Table 1. Average Residential Rates for Local Service
in Urban Areas, 1997-2003
1997 1998 1999 2000 2001 2002 2003
Monthly Charge$13.67$13.75$13.77$13.64$14.49$14.38$14.57
Subscriber Line3.533.523.584.505.055.745.91
T ouch-T one .25 .10 .09 .06 .04 aa
Service Charge
Taxes, 911, and2.422.392.482.573.033.944.28
Other Charges
Total $19.88 $19.76 $19.93 $20.78 $22.62 $24.07 $24.75
Source: Reference Book of Rates, Price Indices, and Household Expenditures for Telephone Service,
by Paul R. Zimmerman, Table 1.2, Federal Communications Commission, July 2004. Available at
[ h t t p : / / www. f c c . g o v / wc b / i a t d / s t a t s . h t m l ] .
Notes: Figures are average rates as of October 15, 2003, and are based upon flat-rate service where
available and measured/message service with 100 five-minute, same-zone, business-day calls
elsewhere. Beginning in 2001, all rates reflect flat-rate service. Charges for add-on services,
such as caller ID, call forwarding, etc., and cellular services are not included in the table.
a. Beginning in 2002, rate includes additional monthly charges for touch-tone service.
Table 2. Average Local Rates for Businesses with a Single Line
in Urban Areas, 1997-2003
1997 1998 1999 2000 2001 2002 2003
Monthly Charge$32.76$32.44$32.41$32.18$31.88$30.86$30.92
Subscriber Line3.543.543.524.394.915.635.75
T ouch-T one .38 .32 .25 .19 .18
Service Charge
Taxes, 911, and4.994.975.035.045.455.475.72
Other Charges
Total $41.67 $41.27 $41.21 $41.80 $42.43 $41.95 $42.40
Source: Reference Book of Rates, Price Indices, and Household Expenditures for Telephone Service,
by Paul R. Zimmerman, Table 1.9, Federal Communications Commission, July 2004. Available at
[ h t t p : / / www. f c c . g o v / wc b / i a t d / s t a t s . h t m l ] .
Notes: Rates are as of October 15, 2003, and are based on flat-rate service where available and
measured/message service with 200 five-minute, same-zone, business-day calls elsewhere. No
add-on services or cellular charges are included. Additional business tables are available in the
FCC report cited.
a. Starting in 2002, additional monthly charges for touch-tone service are included in the monthly

Table 3. Average Household Expenditure for Telephone Service
(All Households), 1996-2002
1996 1997 1998 1999 2000 2001 2002
Annual $772 $809 $830 $849 $877 $914 $957
Percent of2.28%2.32%2.34%2.29%2.31%2.31%2.35%
Household $64.33 $67.42 $69.17 $70.75 $73.08 $76.17 $79.75
per Month
Source: Reference Book of Rates, Price Indices, and Household Expenditures for Telephone Service,
by Paul R. Zimmerman, Table 2.1, Federal Communications Commission, July 2004. Available at
[ h t t p : / / www. f c c . g o v / wc b / i a t d / s t a t s . h t m l ] .
Notes: Statistics presented in the FCC report cited were obtained from U.S. Bureau of Labor Statistics
surveys of consumer expenditures. Percent of total household expenditures calculated by CRS.
Charges for add-on services, such as caller ID and cell phone services, are included in these
Directory Assistance Charges. Local phone companies, in most cases,
assess charges for directory assistance (411) calls. Rates can be as high as $1.25 per
call. Charges for 411 calls are not regulated by the FCC. State authorities may
regulate these charges. In some states, there are extensive regulations. In other
states, the phone companies are given more freedom in assessing 411 fees. Local
phone companies may allow a certain number of calls per month to 411 without
charging any fee. Above that number, fees are assessed. Customers seeking to avoid
these charges should contact their local phone company and ask about the number of
free calls that may be permitted; use a phone book; try the Internet; or call a friend
to get a number.
Inside Wiring. In some cases, a charge labeled “Inside Wiring” may appear
on a customer’s bill. This is an optional charge that customers may pay to a company
for service calls on the wiring inside their home. Monthly fees for inside wiring
“insurance” vary from company to company. Inside wiring is owned by the home or
building owner.
Customers paying this fee are not charged any additional monies if the company
is requested to repair inside wiring. Customers choosing not to pay this fee will be
charged by the phone company for any necessary inside wiring repairs requested.
Fees charged for inside wiring work vary from company to company. If a customer
has an inside wiring problem, there is no requirement to call the phone company.
Since the wiring is owned by the home or building owner, any company may be
called or the owner may choose to work on the wiring.

Toll Calls. Each telephone customer is permitted (within the parameters of
their local dialing plan) to call certain telephone exchanges in their geographic area
without incurring any additional charge on their telephone bill. Because of the
introduction of new area code overlays, local telephone calls may require seven-digit
or 10-digit dialing. Calls made outside of a customer’s local dialing area, but not
going far enough to be classified as long-distance, will incur additional charges on
a telephone bill. Local dialing areas are not determined by the FCC. State authorities
regulate the local dialing areas in their state and make the determination as to
whether calls to certain exchanges are within a specific local dialing area or are toll
Toll calls are often handled by the same company that provides local telephone
service to a customer. However, in many states, state authorities have permitted
long-distance carriers to compete in the toll call market. Toll call rates can vary
substantially depending upon the carrier chosen (in states where such competition is
permitted) and other factors. If there are any questions concerning toll call charges
or whether a specific exchange is included in a local dialing area, they should be
addressed to the company providing local telephone service or state authorities.
In-State Connection Fee. Long-distance companies may have a charge on
a bill labeled the In-State Connection Fee or something similar. According to the
long-distance carriers, this is a fee to recover the charges that local telephone
companies assess on the long-distance companies to carry in-state long-distance and
toll calls over their lines. These charges are often referred to as intrastate access
charges. The FCC does not regulate the fee assessed to recover these charges.
Customers with questions about the fee on their bill or intrastate access charges
should contact the companies involved and their state public utility commission.
In some cases, long-distance companies exempt certain customers from the fee.
For example, customers who have certain service packages from the long-distance
company, customers enrolled in certain types of lifeline programs, or customers who
spend less than $1 per month on long-distance calling.
Regulatory Assessment Fee. In some cases, long-distance and local
companies charge a “regulatory assessment fee,” “regulatory cost recovery fee,” or
“carrier cost recovery charge.” The exact wording and the amount of the charge will
vary. According to the companies assessing the fee, it allows them to recover certain
costs associated with interstate access charges, property taxes, and corporate
expenses relating to governmental regulatory actions and compliance. As with some
other fees, companies may exempt customers that subscribe to certain calling plans
or services. The fee is not a federal fee and is not controlled or mandated by the
FCC. Contact the company involved or state authorities for further information.
Jamming. With the advent of competition in the toll call market, complaints
have arisen that some customer accounts are being frozen so that customers cannot
use a company competing with their local phone company to complete a toll call.
This tactic is referred to as jamming. In cases where this is occurring, customers may
be paying more for their toll calls. Customers who feel that they have been jammed
and have inquiries about competition in the toll call market should address their
inquiries to state authorities.

Sliding. Some customers have also complained that their chosen provider of
toll call service has been switched without their permission. This practice has been
termed sliding. As with jamming, toll call rates can vary substantially from company
to company. Consumers who believe that they have been victims of sliding should
contact their chosen toll call provider or state authorities.
Miscellaneous Caller Services. Local telephone companies offer a wide
variety of caller services such as: caller ID, call waiting, call forwarding, call
rejection, call trace, call return, priority ringing, and voice mail, among many others.
Both the types of caller services offered and the charges for these optional services
vary from company to company. Charges may include monthly fees or per-use
charges. The FCC does not regulate these charges.
Long-Distance Services. Generally, long-distance charges for wired
telephones are wholly dependent upon the long-distance company that a consumer
chooses as his/her long-distance carrier, the particular calling plan (if any) chosen,
and the number and length of calls made during a billing period. Usually, customers
designate a specific long-distance company as their primary long-distance carrier.
When a customer dials a long-distance call by dialing 1+(area code)+telephone
number, a telephone switch automatically routes the call to the customer’s designated
long-distance carrier. However, customers are not required to use their designated
long-distance carrier to handle any of their long-distance calls. If customers use “dial
around” long-distance carriers (reached by dialing the appropriate 10-10-XXX code
for a particular company) instead of their chosen long-distance carrier, charges for
those calls can also be included on a local bill. In addition, customers may use
different types of pre-paid phone cards or long-distance company calling cards to
complete a long-distance call. Rates and conditions for these cards vary widely, and
the charges billed to a card can vary depending upon whether a payphone, business,
or residential phone is used.
Many long-distance companies are now billing their residential customers
directly instead of billing through a local telephone company. As a result, customers
may receive a minimum of two bills for telephone service.
Long-distance calling from wireless (cellular) telephones is also wholly
dependent on the company and calling plan that a customer chooses. Many cellular
companies now bundle local and long-distance calling into service packages and do
not charge extra for long-distance calls. However, customers must pay attention to
the calling limitations (if any) in their wireless contract that apply to long-distance
calls. There may be limits on the number of long-distance calls per month, the
number of minutes per month, or international vs. domestic calling, for example. Per
minute charges for long-distance calling from wireless phones may be quite high if
the calls are outside the scope of a customer’s calling plan.
On March 1, 2000, the FCC and the Federal Trade Commission (FTC) issued
a joint Policy Statement concerning advertising practices relating to long-distance

services, especially dial-around (10-10) numbers.12 The agencies took this action
following thousands of complaints from consumers and issued the Statement to “...
encourage industry to adhere to the standards offered in the joint Policy Statement.”
According to the FCC and FTC, the Policy Statement does not preempt any existing
state law.
Suggested guidelines for advertising of long-distance services are as follows:
!All claims must be truthful, non-misleading, and substantiated;
!Carriers should disclose all costs consumers may incur, such as per-
call minimum charges, monthly fees, and universal service charges;
!Advertising should disclose any time or geographic restriction on the
availability of advertised rates;
!The basis for comparative price claims should be disclosed, and only
current information used in making claims; and
!Information should be disclosed in a clear and conspicuous manner,
and without distracting elements, so that consumers can understand
it and make fully informed choices.
Consumers are usually charged a fee of up to $5 by a local telephone company
when they change the long-distance carrier selected as their primary carrier. Often,
the newly designated long-distance carrier will pay the fee as an incentive to obtain
new customers. The fee has been capped at $5 since the 1984 divestiture of AT&T.
On March 14, 2002, the FCC began a proceeding to examine this charge.13 The
agency will seek to determine if the charge is outdated and may, in fact, hinder
competition by discouraging consumers from switching companies. As part of the
proceeding, the FCC will attempt to determine whether it should set a lower cap or
rely on market forces to set reasonable rates.
The FCC provides Consumer Fact Sheets at its website, see
[], or [
marketsense/welcome.html], or [
Single Bill Fees. Customers who receive a single bill for local and long-
distance services may be charged a fee by the long-distance company for this service.
The fee is not mandated by the FCC and is not a federal charge. In some cases,
customers are informed in advance about the fee. In other cases, no advance notice
is given. Should this charge appear on a phone bill, a customer must contact their
long-distance company and inquire about separate billing for long-distance calls. The
fee will then not apply. Single bill fees are approximately $1.50 per month. An FCC
Fact Sheet is available at [].

12 Joint FCC/FTC Policy Statement For the Advertising of Dial-Around And Other Long-
Distance Services To Consumers, Policy Statement, File No. 00-72, FCC 00-72, released
Mar. 1, 2000.
13 Federal Register, May 15, 2002, pp. 34665-34669.

Slamming. Generally, slamming is the unauthorized change of a customer’s
long-distance service provider.14 There are existing FCC rules and policies designed
to protect telephone customers from this practice, and sections of the
Telecommunications Act of 1996 prohibit carriers from changing a customer’s long-
distance company without following specific verification procedures. On April 13,
2000, the FCC adopted additional rules to combat slamming.15 As a result, state
regulatory agencies will be responsible for resolving slamming disputes. In cases
where a state elects not to administer the slamming rules, the FCC will resolve
disputes. The new rules also require slammers to compensate both the consumer and
the authorized carrier.
Consumers may verify the long-distance carrier connected to their home phone
by calling 1-700-555-4141 from their home phone. A recording will state the name
of the long-distance carrier connected to that line. This is an automated service.
Consumers cannot call the 700 number from another location to verify service on
their home phone. Calls must be made from the line for which one wishes to verify
If there is a problem, customers should contact their local telephone company
and chosen carrier and arrange to be switched back to the chosen carrier at no charge.
If there was a charge for switching or higher rates when slammed, customers have the
right to demand a refund. Consumers may also choose to contact their state’s
Attorney General, public utilities commission, or a consumer protection group or
The FCC provides information on telephone slamming at its website at
[]. Complaints concerning
slamming may be filed electronically at the FCC’s Consumer Information Bureau
website []. Complaints may also be filed
directly with the FCC:
Federal Communications Commission
Consumer and Governmental Affairs Bureau
445 Twelfth Street, SW
Washington, DC 20554
Call toll free: 1-888-CALL-FCC (1-888-225-5322)
Minimum Use Fees. Certain long-distance carriers charge minimum use fees
to some of their long-distance customers. In most cases, basic rate customers (those
customers who are not on any calling plan) are assessed the charge. However, in
some circumstances, customers on calling plans may also be charged. The
companies stated that it was necessary to assess the charge because of the expenses
of billing, account maintenance, and customer service. Consumer advocates

14 For an overview of the slamming issue, see CRS Issue Brief IB98027, Slamming: The
Unauthorized Change of a Consumer’s Telephone Service Provider, by Angele A. Gilroy.
15 Federal Register, Aug. 3, 2000, pp. 47678-47693.

condemned the charge as punishing low volume callers. The fee, if assessed, can be
$3 or more per month.
Long-distance carriers may exempt qualifying low-income customers from
paying the fee and, usually, long-distance calls made during the month are applied
against the fee. If a customer makes $2.50 in long-distance calls during the month,
50 cents will be added to the bill to bring charges up to the $3 minimum. If calls
exceed $3, there is no additional fee. Questions about the structure of these fees or
company policies concerning the fees should be directed to a customer’s long-
distance carrier.
Consumers should note that a minimum use fee is different from the monthly
charge that may be assessed by a particular company’s calling plan. A customer
might pay $5.95 per month to be on a plan that offers long-distance rates of 5 cents
per minute, 24 hours per day. This charge does not increase or decrease regardless
of the volume or cost of calls made during the billing period.
Customers who wish to avoid minimum use charges may contact their long-
distance carrier and inquire about discount calling plans, switch to a long-distance
company that does not charge minimum use fees, or cancel their designated long-
distance carrier. Most long-distance calling plans, regardless of the company, may
carry basic monthly charges. These charges often exceed $3. Should a customer
cancel the designated long-distance carrier, they will still receive incoming long-
distance calls, but would only be able to make outgoing long-distance calls by using
dial-around carriers, prepaid calling cards, or cell phones. Customers choosing this
option should pay strict attention to the details of the price structure of dial-around
or prepaid services. Prices for these methods vary significantly.
CALLS Revisions. Neither the FCC nor the states currently regulate
minimum use fees charged by long-distance companies. On July 9, 1999, the FCC
announced that it would begin an inquiry into how these fees affect low volume
callers.16 This inquiry was concluded as part of the CALLS proposal adopted on May

31, 2000 (see section “Coalition for Affordable Local and Long-Distance Services”).

Although minimum use fees were not abolished, companies agreed to eliminate them
or make these fees avoidable through special calling plans with no minimum monthly
The FCC provides a series of tips at their website for choosing a long-distance
provider. See [].
Internet Access and Long-Distance Charges (Reciprocal
Compensation). Members of Congress and the FCC have been inundated with
inquiries concerning the classification of telephone calls to Internet Service Providers
(ISP) as long-distance instead of local. Those complaining believed that Congress
and the FCC were about to enact provisions that would make all calls to ISPs subject
to long-distance charges. There were and are no bills in Congress to do this.

16 Federal Register, Aug. 5, 1999, pp. 42635-42637.

The FCC conducted a proceeding at the request of telephone carriers to clarify
how local telephone companies should compensate each other (reciprocal
compensation) for carrying telephone traffic to ISPs. Essentially, when Telephone
Company X (a local phone provider) delivers a local call to the ISP, who has chosen
Telephone Company Z to handle its local calls, X pays Z to deliver the call to the
ISP. If the ISP calls someone, Z pays X to deliver the call. Charges paid from X to
Z or Z to X are based upon the length of time that the call is connected or some other
basis determined by X and Z. X and Z enter into an agreement for a specified period
of time to compensate each other for carrying calls. This compensation is paid
between X and Z and does not involve any charges to the ISP or its customers and
has no direct bearing on the fees that an ISP charges its customers.
However, calls to ISPs tend to last a long time, since using the Internet is usually
not a speedy endeavor, but outbound calls from ISPs do not (in most cases). Thus,
local phone companies like X end up paying a lot more to Z than Z pays to X since
the compensation is often based upon the length of time that the call is connected.
X and other local phone companies in the same position petitioned the FCC to
reconsider the status of these calls and designate them as interstate instead of local.
Reciprocal compensation applies only to local telephone calls.
On February 25, 1999, the FCC ruled that “... Internet traffic is jurisdictionally
mixed and appears to be largely interstate in nature” and in a Notice of Proposed
Rulemaking is seeking to determine a federal inter-carrier compensation
mechanism.17 Designation of these calls as interstate by the FCC is a purely
jurisdictional designation. Although this ruling means that the structure and method
of reciprocal compensation (payments between X and Z) will change, it does not
change the status of local calls to ISPs to long-distance for the purposes of billing
individual customers. It also does not require an end to reciprocal compensation.
The U.S. Court of Appeals for the District of Columbia ruled, on March 24, 2000,
that the FCC had not adequately justified its analysis of phone calls to Internet
service providers as interstate. The case was sent back to the FCC for further
In an Order released on April 19, 2001,18 the FCC concluded that
telecommunications traffic delivered to ISPs is interstate access traffic and is not
subject to reciprocal compensation. However, the FCC did not abolish reciprocal
compensation. Instead, it established a gradual reduction of the rates over the two
years following the effective date of the order.
The FCC does not regulate the fees that ISPs charge their customers for Internet
access. ISPs construct their own packages of monthly, weekly, hourly, or per-minute
charges for their customers. Additional information is available via the FCC website
at [].

17 Federal Register, Mar. 24, 1999, pp. 14203-14206, 14239-14243.
18 U.S. Federal Communications Commission, In the Matter of ... Intercarrier Compensation
for ISP-Bound Traffic, Order on Remand and Report and Order, CC Dockets 96-98 and 99-
68, FCC 01-131, adopted Apr. 18, 2001, released Apr. 27, 2001. Available via the FCC
website at [].

Federal Telephone Excise Tax. The federal telephone excise tax first
appeared in 1898 as a temporary tax to finance the Spanish-American War. The tax
reappeared in 1914 as a tax on long-distance service necessitated by World War I.
It has been repealed and reinstated several times since then. The tax was made
permanent by the Revenue Reconciliation Act of 1990 (P.L. 101-508) and is
currently assessed at a rate of 3% on local and long-distance telephone services.
Monies collected from this tax are not kept by the telephone companies but are
forwarded to the U.S. Department of the Treasury for general revenue purposes.19
The Telecommunications Act of 1996 (P.L. 104-104) did not alter this tax.
Legislation to repeal this tax has been introduced in various Congresses but has never
become law.
Telephone excise tax collections have been as follows: FY2003 ($5.8 billion),
FY2002 ($5.8 billion), FY2001 ($5.7 billion), FY2000 ($5.6 billion), FY1999 ($5.2
billion), FY1998 ($4.8 billion), FY1997 ($4.7 billion), and FY1996 ($4.2 billion).
Because charges on a telephone bill are presented in numerous ways, it is not
always clear to what amount the 3% federal excise tax is applied. Essentially, the tax
is assessed on all local and long-distance telephone services. According to the IRS
code (section 4251), the tax is imposed on “...amounts paid for communications
services....” Communications services are defined as including local telephone
service, toll telephone service, and teletypewriter exchange service.
Many telephone bills may have a line labeled “federal tax” or “federal excise
tax” with an amount next to it, but the total upon which the tax is based may not
appear near the federal tax line. To determine the total upon which the tax is based,
perform the following calculation:
If the federal excise tax on a bill is listed as $1.21.
$1.21 is 3% of what number?
1.21 ÷ .03 = 40.3333
The total upon which the 3% federal excise tax was calculated was $40.33. That
total may appear somewhere else on the bill, or the individual components that add
up to the total may be presented.
Excise Tax on Frequent Flier Miles. Some long-distance companies offer
their customers the chance to earn frequent flier miles based on their long-distance
calling plan. The long-distance companies purchase the miles from airlines and
award them to their customers according to the rules of the promotion being offered.
Congress, in the Taxpayer Relief Act of 1997, established an excise tax of 7.5% on
the purchase of frequent flier miles. The airlines collect the tax from the companies
that purchase the miles. Some long-distance companies have chosen to pass all or
part of this tax on to their customers who receive the miles. They are free to do so,
but are not required to do so. Although the long-distance companies collect this

19 For additional information on the telephone excise tax, see CRS Report RS20119,
Telephone Excise Tax and CRS Report RL30553, The Federal Excise Tax on Telephone
Service: A History, both by Louis Alan Talley.

charge via the telephone bill, it is not a telephone-related charge and although the
charge is the result of a federal excise tax, it is not related to the 3% federal telephone
excise tax mentioned above.
Local Number Portability (LNP). The Telecommunications Act requires
implementation of local number portability. LNP permits telephone customers to
retain their telephone number even if they switch telephone companies. LNP was
implemented in stages and was initially available in the 100 largest metropolitan
areas. Phone companies reportedly have spent approximately $3 billion to
implement LNP.
As of February 1, 1999, local phone companies could, but were not required to,
assess a monthly charge on customers’ telephone bills to recover some of their costs
incurred in implementing LNP. A monthly charge for LNP may appear on
customers’ bills only in areas where LNP has been implemented. The charge will
vary from company to company and region to region depending upon the costs
incurred to implement LNP. According to various reports, LNP charges that have
been assessed have been in the 20 to 60 cents range. In most cases, residential and
business customers will be charged the same amount. The charge is permitted to
continue for five years from the date it first appears, but should not increase during
that time.
However, according to the regional Bell operating companies, during 1998 and
1999, while they were submitting cost data to the FCC concerning implementation
of wireline LNP, the specific costs associated with intermodal (wireline to wireless)
LNP (not implemented until 2003) were not fully known. The companies requested
permission to recover the additional costs relating to intermodal LNP. As a result,
a petition was filed with the FCC to waive the five-year recovery rule. On April 13,
2004, the FCC issued an order waiving the five-year rule to allow the companies to
recover the additional costs.20 The FCC did not approve recovery of a specific
amount of money over a specific period of time, but will obtain documentation from
each company relating to specific costs. Following review of the documentation by
the FCC, LNP charges on telephone bills will likely increase and may remain on the
bill, in some cases, beyond the original five-year recovery period.
Since LNP was implemented in stages, customers in the largest metropolitan
areas saw the charges first, while customers in other areas will not see any charge
until LNP is implemented in their area. Any carrier assessing an LNP end user
charge must file a tariff with the FCC.
On July 1, 1999, following a five-month investigation, the FCC announced that
it had directed several local phone providers to reduce their charges for LNP.
According to the FCC, this action will result in a savings of $584 million to

20 U.S. Federal Communications Commission, In the Matter of Telephone Number
Portability, BellSouth Corporation Petition for Declaratory Ruling and/or Waiver, Order,
CC Docket 95-116, FCC 04-91, adopted April 8, 2004, released Apr. 13, 2004. Available
on the FCC website at [].

Wireless and competitive local exchange carriers (CLEC) and long-distance
companies have also incurred costs associated with LNP. These companies are not
subject to the same restrictions regarding cost recovery and are free to charge their
customers as much or as little as they want over a period of time of their choice to
recover the costs associated with LNP implementation. As a result, customers may
see wireless, CLEC, and long-distance companies assessing an LNP charge also.
Wireless Local Number Portability. Wireless local number portability
(WLNP) went into effect on November 24, 2003, for wireless carriers in the top 100
Metropolitan Statistical Areas (MSA). Wireless carriers in the rest of the country
must implement WLNP within six months after receiving a number porting request
or by May 24, 2004, whichever is later. Charges for implementing WLNP may
appear on a wireless bill. Carriers are free to determine the amount of the charge.
For additional information and a list of the top 100 MSAs, consult the WLNP Web
page at the FCC website: [].
Universal Service. Section 1 of the Communications Act of 1934, as
amended, states that one of the reasons for creation of the FCC is to
...make available, so far as possible, to all the people of the United States,
without discrimination on the basis of race, color, religion, national origin, or
sex, a rapid, efficient, Nation-wide, and world-wide wire and radio
communication service with adequate facilities at reasonable charges. ...
The Telecommunications Act of 1996 added section 254 (Universal Service) to the
Communications Act. This section states that policies for the preservation and
advancement of universal service shall be based upon, among other things, quality
service at just, reasonable, and affordable rates and that access to advanced
telecommunications and information services should be available in all regions of the
The concept of universal service can trace its roots to the turn of the century and
the early years of the telephone system in the United States. During these years, a
complex system of cross subsidies developed to fund telephone services for all
citizens of the United States. Wiring rural areas was much more expensive than
wiring urbanized population centers. Profits generated in the urbanized areas were
used to subsidize rural wiring. Higher rates were charged for business customers and
long-distance calls, enabling lower residential charges for local calling. Later,
assistance was provided for low-income households. As the years passed, revenues
continued to increase, and these complex cross subsidies enabled the funding of
universal service at affordable rates for all citizens.
With the divestiture of AT&T in 1984, the expansion of competition, and
advances in technology, the structure of the telecommunications industry in the
United States began a complex transformation that continues today. No longer was
the system of cross subsidies applicable mainly to a single major provider of
telephone service. At divestiture, seven “Baby Bells” were created. Due to mergers
and corporate restructuring, only four of the original seven remain, and only one of
those has the same name it had at divestiture. The number of local and long-distance
providers mushroomed, and the country entered the information age. Telephone

service was no longer limited to a wired connection in a home or business. New
questions arose relating to the concept of universal service. What type of
connections should be included? Who should contribute to a universal service
mechanism? How much should they pay? How should they pay?
As a result of the Telecommunications Act of 1996, the FCC attempted to
answer some of these questions. In its May 7, 1997, universal service and access
reform decisions, the agency, in compliance with the provisions of the 1996 Act,
expanded the field of entities eligible for universal service to include schools and
libraries (known as the “E-rate”21) and rural health care providers. The pool of
companies paying to fund universal service was enlarged and access charges were
Up until the present time, telephone bills for the most part did not include
itemized charges for universal service. While, technically, all telephone customers
have contributed to universal service for decades, such charges were built into the
rate system. The companies that currently pay into the universal service mechanism
do so based upon their revenues and a quarterly contribution factor, not according to
a specific fee. The FCC had not established rules mandating or forbidding phone
companies from itemizing their universal service costs on telephone bills, and there
is no specific federal universal service charge that must be charged directly to
customers. Phone companies are taking different approaches to itemizing universal
service costs on customers’ bills. Some phone companies feel that they must pass
on the costs of universal service directly to their customers and are itemizing charges
on bills to reflect this. Any charge on a phone bill labeled as a “federal universal
service charge” or “universal service connectivity charge” or something similar has
been added as a specific item by the company issuing the bill. Questions about any
such charges should first be directed to that company.
There has been a great deal of consumer confusion over universal service
charges presented on telephone bills. Some companies collect a flat monthly fee.
Other companies assess the charge as a percentage of the interstate portion of the bill.
The flat fees and the percentages vary from company to company.
Telecommunications providers pay a percentage of their interstate end-user revenues
into the universal service mechanism based on a contribution factor that is adjusted
quarterly. Some companies that assess the universal service fee based on a
percentage have assessed the charge at percentages exceeding 10%. Many consumers
have complained about charges exceeding the contribution factor claiming that the
companies are profiting from collecting excessive universal service fees.
Telecommunications companies have stated that they are only recovering the
universal service fee and administrative and other business costs associated with
collecting the fee.
On May 8, 2001, the FCC initiated a review of the way that telecommunications
carriers contribute to the universal service fund. Part of the review will be to ensure

21 For more detailed information on the E-rate, see CRS Issue Brief IB98040,
Telecommunications Discounts for Schools and Libraries, and CRS Report RL32018, The
E-Rate Program: Universal Service Fund Telecommunications Discounts for Schools.

that the carriers’ contributions are recovered (from customers) fairly, accurately, and
equitably. In a Federal Register notice published on March 13, 2002, the FCC
invited additional comments on reforming the universal service contribution recovery
process to make it more fair and understandable for consumers.
2003 Changes in Universal Service Fees on Phone Bills. Following
a review of the comments received by the FCC, the Commission announced new
rules on December 13, 2002, that prohibit telecommunications carriers who choose
to recover universal service contribution costs through a line item on telephone bills
from assessing universal service fees that exceed their universal service fee
contribution factor. If the contribution factor is 9%, the line item on the phone bill
may not exceed 9%. The carriers may continue to choose to express the line item as
a flat fee or as a percentage, as long as the charge does not exceed the total amount
associated with the contribution factor. Although this action should result in lower
universal service fees for many consumers, the FCC did not prohibit the carriers from
recovering their administrative and other costs through their customer rates or
another line item. Those additional costs, however, may not be included in the
universal service fee on the phone bill. In addition, carriers may not recover
universal service contributions from Lifeline (qualifying low-income) customers.
The rules took effect on April 1, 2003.22 The FCC chose not to direct the carriers to
use specific wording to label the universal service line item on a phone bill. As a
result, language is likely to vary. A summary of the FCC action may be found in the
Federal Register of December 30, 2002, on pages 79525 through 79533.
Table 4. Universal Service Quarterly Contribution Factors
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

7.3% 9.1% 9.5% 9.2% 8.7% 8.7% 8.9% 8.9%

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q


For extensive information on the FCC’s actions relating to universal service and
copies of documents see [],
as well as the FCC Consumer Fact Sheets on universal service at
[ h ttp://] .
Additional information on quarterly contribution factors may be found at the
FCC website at [].

22 U.S. Federal Communications Commission. In the Matter of Federal-State Board on
Universal Service ... and Truth-in-Billing and Billing Format, FCC 02-329, adopted Dec.

12, 2002, released Dec. 13, 2002. Available via the FCC website at [].

The universal service fund is administered by the National Exchange Carrier
Association (NECA), which can be reached at its website, [], or
National Exchange Carrier Association
80 South Jefferson Road
Whippany, NJ 07981-1009
(800) 228-8597
NECA’s subsidiary, the Universal Service Administration Company (USAC),
provides detailed information on the various components of the universal service
mechanism at [].
Local Taxes. The county, city, or state in which an individual lives often has
its own tax on telephone service. Local taxes may be much higher than the federal
excise tax and can exceed 20%. Local taxes may include franchise, gross receipts,
state sales, local sales, municipal, special district, or earnings taxes, and state
mandated universal service surcharges.23 Some or all of these charges may appear
on a customer’s telephone bill. Questions about these taxes should be directed to
local phone companies, state public utility commissions, or local tax authorities.
Property Taxes. In some cases, a telephone company may include a charge
on the bill to recover the property taxes that it pays to local governments. It may be
called the Carrier Property Tax or something similar. Assessing this charge on a
customer is the company’s choice. The FCC does not regulate this practice, and it
is not a federal tax.
Interstate Tax Surcharge. This charge, also known as a gross receipts tax,
applies to interstate revenues generated by long-distance telephone companies within
an individual state. It is not a federal tax. State or local tax authorities can provide
information on this tax.
911 Charges. Local government authorities are responsible for the
construction and maintenance of 911 emergency calling systems within a state. Any
911 charges or taxes appearing on a bill are dependent upon a local government’s
actions relative to 911 and will vary from locale to locale. Implementation of an
enhanced 911 (E911) system is underway for wireless service providers. As a result,
customers of cellular and personal communications services and other wireless
service companies may see 911 charges on their bills.
Relay Center Surcharges. Also known as Telecommunications Relay
Services (TRS), this charge is used to provide operator-assisted telecommunications
services for people with hearing or speech disabilities. Costs for intrastate TRS
services are paid by the states. Costs for interstate TRS services are borne by the
Interstate TRS fund, administered by the National Exchange Carrier Association and
funded by all interstate carriers. The NECA collects funds from approximately 3,000
companies based on their interstate revenues. Charges on customers’ bills are usually

23 Telecommunications Tax Policies: Implications for the Digital Age, National Governors’
Association, Feb. 2000.

a few cents per telephone line. TRS services are required by Title IV of the
Americans With Disabilities Act (P.L. 101-336). Additional information on TRS,
is available on the FCC’s website at [] and
[ h ttp://] .
Cramming. Customers who cannot determine what a specific charge is for
might have been “crammed.” Cramming refers to the inclusion of unauthorized or
possibly illegal charges that appear on a customer’s bill. An amount might be labeled
as “monthly fee,” “membership,” or “information service.” Contact should be made
with the local telephone company or bill provider to obtain the name, address, and
phone number of the company for whom they are collecting the fee in question.
Consumers should request that the charge be removed from the bill if they believe
they are a victim of cramming. Since the local phone company is usually only acting
as a billing agent for a company, they cannot resolve individual disputes. However,
they should be made aware of the situation.
Complaints concerning questionable charges for calls placed within a
customer’s state should be directed to a local consumer office or the state public
utility commission and the company that initiated the charge in question.
If the charges involve information services (900 numbers, psychic hotlines, etc.),
not telephone services, a customer may register a complaint with and obtain
information from the FTC website [] or
Federal Trade Commission
Consumer Response Center, Room 130
600 Pennsylvania Avenue, NW
Washington, DC 20580
Toll free: (877) 382-4357
Should the complaint involve telephone-related issues, interstate or international
services, or charges, a complaint may be registered in writing with the FCC:
Federal Communications Commission
Consumer and Governmental Affairs Bureau
445 Twelfth Street, SW
Washington, DC 20554
Call toll free: 1-888-CALL-FCC (1-888-225-5322)
The FCC is currently conducting an inquiry into invalid and unclear charges on
telephone bills. The FCC provides further information at its website,
[ h ttp://] .
Information on the FCC’s anti-cramming best practices guidelines is provided
at [].
Internet Cramming. A cramming scam that targets small businesses,
religious groups, charities, foundations, or any small organization desiring an Internet
presence has generated thousands of complaints. Companies, usually through some

type of telemarketing24 operation, will contact consumers and offer a “free trial” for
the design and maintenance of a website. In many cases, such companies fail to
disclose that, unless the free trial is specifically canceled by the consumer, a monthly
fee (for continued maintenance of the website) will be collected and charged to a
customer’s telephone bill. In some cases, even when the free trial is canceled by the
customer, the charges continue to appear on the customer’s phone bills.
The FTC has filed Internet cramming cases against various companies and
provides information at their website. Complaints may be filed at the FTC website
or by contacting the FTC at the address or phone number listed above.
Charges on Wireless Telephone Bills
Many of the charges that appear on local (wired) telephone bills also appear on
bills issued by wireless companies. Most notably: monthly service charges, itemized
call charges (local and long-distance, depending upon the calling plan a customer
chooses), federal telephone excise tax, 911 fees, any applicable state or local taxes,
universal service charges, LNP, and TRS fees. As with local phone bills, wording
used on wireless bills can vary from company to company. Also, wireless companies
are not subject to the same truth-in-billing and billing format principles discussed
earlier in this report. However, the FCC is currently conducting an inquiry into
whether its truth-in-billing requirements should apply to wireless carriers and what
uniform labels should be used to identify charges resulting from federal action.25
Neither SLC nor PICC charges appear on wireless bills. However, some
wireless companies use the wording “Interconnect/Landline Charges,” or “Landline
Connection Fee” on their bills. This charge is not a result of the FCC access charge
mechanism. It is a charge assessed by a local phone company to connect a wireless
call through their network to the called party. The charge varies company to
company and calling plan to calling plan.
Although many charges on wireless bills are similar to or the same as those on
wireline bills, there is a series of charges that are particular to wireless. For instance,
wireless customers in many cases are billed for both incoming and outgoing calls,
and wireless companies may start billing for a call as soon as the send button is
pressed. Unlike wireline calls, a charge may appear on a wireless bill for a call that
did not go through. In addition, wireless companies often bill by the minute, not by
the second. As a result, a call lasting 61seconds may be billed as a two minute call.
Also, there may be substantial termination fees assessed on customers who try to
cancel their service before a certain date, and there are usually geographic limits for
coverage provided by different companies and plans.
In addition, the local dialing area for a wireless phone number does not
necessarily mirror the local dialing area of a wired phone number. As a result, no
presumption should be made that every call between a wired and wireless phone,

24 For more detailed information on telemarketing, see CRS Report RL30763,
Telemarketing: Dealing with Unwanted Telemarketing Calls.
25 Federal Register, June 25, 1999, pp. 34499-34501.

even in the same general geographic area, is a local call. There are cases where a
wired to wireless call to a neighbor may incur long-distance charges. Customers
must check with their wireless carrier to determine whether calls from or to certain
area codes or numbers are considered local for billing purposes.
The FCC has no regulatory authority over these various fees or billing practices.
Essentially, when customer signs up for wireless telephone services, they have
entered into a contractual agreement with a company. Customers must read the
contract carefully and fully understand the terms. The monthly charge quoted for
service is not necessarily the full cost of a calling package. Just as with wireline
telephone bills, fees and surcharges added to a bill can substantially increase the base
price of a monthly plan. Labels and names attached to these fees and surcharges vary
significantly. In cases where customers believe they have been misled or have been
the victims of some questionable business practice or incorrect charge, they may wish
to contact the office of the attorney general or the public utility commission in their
state. The FCC provides information on wireless phone bills and issues at
[] and
[ h ttp://] .
Bundling of Services
Telecommunications companies now offer different “bundles” of services for
one monthly fee. For example, for a flat monthly charge, a consumer might be able
to obtain from a single company local and long-distance telephone service (including
such options as caller ID, call fowarding, call waiting, etc.) and a broadband Internet
connection. However, the monthly charge quoted in advertisements for the bundle
does not include additional applicable federal telephone excise taxes, universal
service fees, state and local taxes and fees, and any other fees assessed by the
company. While a bundle of services, even with taxes and fees included, may lower
monthly costs for some, usually heavy volume, users, it may also unexpectedly raise
costs for other, usually low volume, users. Consumers must carefully review the fine
print in ads for bundled services or contact the company to clarify the full cost of a
particular bundle and must understand any other limitations attached to the plan
before signing up. The FCC does not regulate the selection of services placed in a
bundle, nor does it regulate the prices charged for the bundled package.26
Federal Communications Commission
The FCC Consumer Information Bureau has developed a website devoted to
various telephone-related issues. The site includes several FCC fact sheets on
specific telephone-related issues and summaries of enforcement actions, and it allows
consumers to file complaints electronically. See [
information_directory.html] .

26 For additional information on bundling, see CRS Report RL32232, Bundling Residential
Telephone, Internet, and Video Services: Issues for Congress.

Federal Communications Commission
Consumer and Governmental Affairs Bureau

445 Twelfth Street, S.W.

Washington, DC 20554
Call toll free: 1-888-CALL-FCC (1-888-225-5322)
The FCC website provides a list of main, complaint, and in-state, toll-free
telephone numbers for the telecommunications regulatory authorities in each state.
The list is available at []. No mailing
addresses are provided.
National Association of Regulatory Utility Commissioners
The National Association of Regulatory Utility Commissioners (NARUC) is an
organization of state and federal regulatory commissioners having jurisdiction over
public utilities. Individual state public utility commissions (PUC) may provide
assistance to consumers concerning telephone bills and any state laws and regulations
that may apply to companies providing telephone services within the state.
Website connections and addresses for state PUCs are available through the
NARUC website at []. Also, NARUC can be contacted at the
following address:
National Association of Regulatory Utility Commissioners
1101 Vermont Avenue, NW, Suite 200
Washington, DC 20005
(202) 898-2200