TO: Mayor and Town Council
SUBJECT: Update on Telephone Service Issues in the Chapel Hill-Durham Border Area
DATE: November 26, 2001
The purpose of this report is to provide follow-up information on the status of telephone service issues in Chapel Hill.
The key issue of note is that, pending approval of the N.C. Utilities Commission, telephone companies will soon have a mechanism for abolishing the border plan that has required some Chapel Hill residents to choose between either a Chapel Hill local calling area or a Durham local calling area. A new tax law, signed by Governor Easley on October 6, would revise the taxation of telecommunications services in North Carolina and could trigger a “zero-rate” calling plan between Chapel Hill and Durham.
The zero rates are not yet official and will be implemented only after Utilities Commission approval. BellSouth and Verizon have submitted their new calling plans. However, the Utilities Commission’s Public Staff will make a recommendation to the Commission on proposals submitted by the telephone companies. The Commission could approve the zero-rate calling plans at a meeting on December 3. If approved, the new rates would take effect for BellSouth and Verizon customers on January 1, 2002.
BACKGROUND AND INFORMATION
On March 26, the Manager provided a report to the Council that summarized telephone service issues within Chapel Hill (Attachment 1). The report focused on four key areas: (1) Service issues; (2) boundary lines; (3) Extended Area Service (EAS); and (4) directory assistance and telephone directories.
The report concluded that customer service issues have been resolved, but that neither company would support a boundary line change for economic reasons. Both companies stated efforts to work with each other to provide the most accurate directory assistance database information, although company representatives explained that they could not control long-distance directory information services (919 555-1212) because that data is provided by third parties. We believe that, with the exception of EAS, most of these matters are settled. Attachment 1 provides a more detailed analysis of these issues. The status of EAS is explored below.
An Extended Area Service (EAS) plan would provide unlimited, flat-rate calling service, rather than a “measured” (per minute) charge. After the March report, Verizon submitted a cost study to the Utilities Commission’s Public Staff to reflect the costs and additional charges of providing EAS. (Under procedures established by the Commission, BellSouth was able to determine its additional charges without a cost study.)
According to the Utilities Commission, if the EAS proposal had been put into effect, the companies would have been entitled to recover the loss of potential revenue due to toll-free calling:
· Verizon, which would have lost an estimated $4.6 million under EAS, proposed a monthly increase of $2.86 for residential customers and $3.43 for business customers.
· BellSouth, whose estimated loss was $750,000 under EAS, proposed a monthly increase of approximately $1.48 for residential customers and $4.13 for business customers.
Because a higher fee would have been involved with EAS, the Utilities Commission would have required a poll of customers to determine support for an EAS plan. A poll could have added approximately two months to the review process.
Next Step for EAS: EAS will not be necessary if the zero-rate calling plan is approved by the Utilities Commission. However, the zero-rate plan is “EAS-like” because it accomplishes the same goal of providing toll-free calling between Chapel Hill and Durham. The difference is that no new fees will be involved. The zero-rate plan will be made possible by tax law changes explained below.
New Tax Changes
On September 26 and October 6, Governor Easley signed North Carolina Session Laws 2001-424 and 2001-430, which extensively revise the statutes governing the taxation of telecommunications services in North Carolina.
The tax changes would eliminate the 3.22% franchise tax on gross receipts for telephone service (Attachment 2). This will trigger telephone rate reductions. Historically, gross receipts have been incorporated into the local telephone rate and not listed separately on a telephone bill. Telephone rates will need to be revised to reflect the new tax rate.
Although the rate will be reduced, most customers will not see a reduction in total telephone bills. This is because Session Laws 424 and 430 have revised (and generally increased) sales tax rates for telephone service, replacing the varying rates that previously applied as a uniform 6% rate for all services.
Under a Utilities Commission order implementing the new laws, telephone companies will be required to:
· lower rates set for local service to reflect the tax change;
· file work plans to show how much rates have been reduced;
· show that the rate reduction on customer bills equals the tax reduction.
[This change is not expected to have an impact on the Town’s revenues. Although the franchise tax on gross receipts is being repealed, a portion of the proceeds of the new uniform sales tax on telephone service will be distributed to local governments.]
Verizon’s rate proposal provides a reduction in annual revenues of $3.4 million that, according to the Verizon report, “fully addresses the tax savings amount.” (Attachment 3).
As of this writing, BellSouth had not provided the Town a copy of the rate proposal. Since the company’s filings with the Utilities Commission were labeled proprietary and confidential, the Commission’s Public Staff was unable to release the information. However, Public Staff did confirm that both BellSouth and Verizon had filed similar zero-rate calling plans from Chapel Hill to Durham.
Zero-Rate Calling
The proposed “zero-rate” calling plan between Chapel Hill and Durham would:
· allow Chapel Hill customers to call both Chapel Hill and Durham numbers as local calls;
· eliminate the Chapel Hill Border Plan, meaning that customers would no longer need to choose either a Chapel Hill- or Durham-oriented telephone number (such as the “408” prefix).
Timeline
The proposals of both Verizon and BellSouth are being presented by the Public Staff of the Utilities Commission at the December 3 agenda conference.
If approved, the changes are to become effective January 1, 2002 and applied to bills dated on or after January 1. If the new rates are not implemented by the time bills are issued for January service, they will be made retroactive, and customers will receive credit on their bills.
We will continue to monitor these developments, including the conclusions of the Utilities Commission. We will provide an update to the Council in January.
1. March 26, 2001 Memorandum to Council (begin new p. 1).
2. October 11, 2001, Docket No. P-100, SUB 149, “Motion to Require Tariff Revisions,” Before the N.C. Utilities Commission (p. 31).
3. November 9, 2001, Letter and Transmittal from James W. Crawford, (Response of Verizon South) (p. 34).
TO: Mayor and Town Council
SUBJECT: Information Update on Telephone Service
DATE: March 26, 2001
The purpose of this report is to provide follow-up information on the status of telephone service issues in Chapel Hill. The key issue of note is that the Utilities Commission has begun the process toward an Extended Area Service (EAS) study, per the Council’s October 2000 request. We believe that BellSouth and Verizon have addressed most other telephone service issues raised by Chapel Hill residents.
BACKGROUND
On October 23, 2000, the Council adopted resolutions requesting the following:
· That BellSouth and Verizon study the option of redrawing telephone service boundary lines in Chapel Hill to avoid dividing neighborhoods, and to provide follow-up information to the Council within 90 days.
· That the N.C. Utilities Commission begin procedures to establish an Extended Area Service (EAS) plan for Chapel Hill and Durham.
The Council took these actions based on reports from citizens at both the July 5, 2000 and September 18, 2000 meetings. These citizens, who reside primarily along the eastern border of Town in both Orange and Durham counties, raised concerns that included:
1. Varying costs to call nearby telephone numbers, including neighbors who live across the street but who are served by another company.
2. Inconsistent telephone number listings in local directories, including directory assistance.
3. Connection problems and other service issues.
We provided the Council’s resolutions to both BellSouth and Verizon and arranged to meet with representatives of the two companies to discuss how to achieve the Council’s objectives. On January 17, we met with BellSouth’s:
· Kathy Hawkins, Regulatory and External Affairs Director/State Education Director
· Whitney Jones, Public Information Director of Regulatory and External Affairs
· Linda Cheatham, Director of Regulatory and External Affairs.
On February 7, we met with Verizon’s:
· Jim Crawford, Director of Regulatory and Governmental Affairs
· Steve Toler, Region Director of Public Affairs
· Ron Eaton, Area Manager.
Written responses from the two companies are included in the attached letters (Attachments 1 and 2) and summarized below.
We also sent the Council’s resolutions to the N.C. Utilities Commission. On February 2, the Mayor received a letter from Jo Anne Sanford, Chair of the Utilities Commission (Attachment 3).
DISCUSSION
Our discussion with the two telephone companies focused on the Council’s adopted resolutions:
Service Issues. BellSouth did not have any customer service issues that were brought to our attention by citizens.
Verizon representatives said that company representatives visited neighborhoods in the affected areas, going door-to-door to test lines. Verizon also contacted representatives of neighborhood groups. Mr. Eaton said that a common complaint was that phones were out of service at times. Verizon’s equipment improvements included:
· repairing wires at remote locations
· obtaining land for the addition of a new “remote distribution node” to better serve customers in more remote areas; and,
· upgrading lines that had degraded at points, thus better equipping the service to switch from analog to digital service lines and offer high-speed connections. (Since the meeting with Verizon, some customers in the area have alerted us that they have subscribed to another high-speed Internet service in this area, thus increasing their Internet connection speed.)
Boundary lines. BellSouth and Verizon both reported that a telephone boundary line change is not a viable alternative.
A boundary line change would require the agreement of the two companies through the establishment of a “boundary transfer.” Telephone service providers can agree to redraw service lines, although the N.C. Utilities Commission cannot require them to do so. In State of North Carolina ex rel. Utilities Commission v. Southern Bell Telephone and Central Telephone Company (1974), the N.C. Court of Appeals ruled that the Utilities Commission does not have the authority to compel a telephone company to provide local exchange service to an area already receiving such service from another public utility.
BellSouth representatives say that such a boundary change would involve installation of a significant quantity of network facilities to serve the boundary communities, and such a change is not economically feasible for the company. According to BellSouth, a proposal in which BellSouth and Verizon would trade customers was also ruled out because no BellSouth customers had requested to become Verizon customers. During our discussions, we asked if there were other types of concessions that would help the neighborhoods that were divided. Whitney Jones of BellSouth says that the two companies will meet with each other at a future date to discuss other ideas to help these customers.
Extended Area Service. Extended Area Service (EAS) would provide unlimited, flat-rate calling service, rather than a long-distance charge. The Extended Area Service option would eliminate the need for Verizon’s Chapel Hill Border Plan, because it would provide flat-rate calling between Verizon and BellSouth telephone numbers. The plan would most likely include a specific area, such as Chapel Hill and Durham.
BellSouth officials report that they:
· will not oppose an EAS program from Chapel Hill to Durham; and
· will not commit to an EAS program for the entire Triangle, stating that they require additional analysis of the issue.
Verizon officials report that the company will not support any EAS alternative. Mr. Crawford explained his opinion that:
· the current system is flexible enough because it offers a choice between the Border Plan (Chapel Hill local calling) and the Tri-Wide Plan (Durham local calling);
· the current system puts the burden of paying for the call on the “cost-causer,” while an EAS plan would subsidize the telephone service for those callers.
The N.C. Utilities Commission could authorize such a plan after studying the community of interest and the costs involved in establishing a flat-rate system. Hugh Gerringer, Telephone Engineer with the Public Staff of the Utilities Commission, estimates that this process could take a year or more to complete.
The Town’s EAS study request is currently at the Public Staff level of the Utilities Commission. Mr. Gerringer says that the first step will be for Verizon to conduct an EAS cost study from three exchanges:
The Commission staff hopes that Verizon will do the study voluntarily rather than having the Commission require it. Once the study results are available, the Commission staff will negotiate with Verizon what rate increases are appropriate for the Durham exchange customers, including those in the Chapel Hill Border Plan. Applicable rate increases for the Chapel Hill, Hillsborough, and Pittsboro subscribers can be determined without doing a cost study.
Directory Assistance and Number Listings. Residents have raised concerns over inability to locate numbers within Chapel Hill by using directory assistance. This can occur because there is no single provider of directory assistance information.
At BellSouth’s request, the Town Manager’s Office provided 12 random telephone numbers in the Verizon service area for BellSouth to conduct a test of its directory assistance system. Of the 12 numbers provided, 100% were correctly listed in local directory assistance and 11 were listed correctly in national directory assistance.
The Utilities Commission letter (Attachment 3) recognizes the Council’s concern that Chapel Hill subscribers served out of the Durham exchange be listed in both BellSouth’s and Verizon’s directories and included in both companies’ local directory assistance listings. Ms. Sanford, chair of the Commission, says she believes that existing Commission orders require this listing.
Ms. Sanford’s letter also states the Commission’s limited authority over intrastate directory assistance service provided by long-distance carriers. The Commission lacks jurisdiction over directory assistance service provided by interstate long-distance companies, which is viewed as a competitive business. (BellSouth and Verizon have also provided the same explanation.) “The range of directory assistance options available to customers makes it difficult for the Commission to ensure that directory assistance service is accurate and provided at reasonable prices,” Ms. Sanford’s letter explains.
Telephone Directory Charges. Citizens have informed the Council of varying charges and availability of telephone directories.
BellSouth annually delivers updated directories at no charge. BellSouth also provides:
Verizon will provide:
· free directories at the Chapel Hill Town Hall, Public Library, the Chapel Hill-Carrboro Chamber of Commerce, and at Verizon company stores;
· directory information on the Internet at www.superpages.com;
· both Verizon and Triangle area directories to the neighborhood associations of Silver Creek and Chandler’s Green.
The Utilities Commission has jurisdiction over the “white pages” section of local telephone directories, although the directories are prepared by each company using a standard format. Ms. Sanford’s letter states that, “The Utilities Commission could not reasonably require all local exchange companies to use the same ‘white pages’ format without carefully examining whether such a decision of this nature could only be made during a formal regulatory proceeding. Having said this much, it is not my impression that there is a significant difference in the format and basic contents of the directories distributed by BellSouth and Verizon.”
Uniform Service Standards. On October 23, the Council adopted a resolution that petitioned the Utilities Commission to require telephone service providers to meet uniform service standards for all Chapel Hill citizens.
The Utilities Commission requires telephone companies to meet a uniform list of technical quality service standards. Ms. Sanford’s letter explains that in recent months, the Commission has spent considerable time attempting to improve monitoring of local service quality in order to take appropriate enforcement action. “Thus, we do have uniform technical service quality standards as is requested in your October 31, 2000, letter, and we have escalated our focus on compliance with these standards.”
Steps to Encourage Local Competition. We have mailed letters to 13 other local service providers, inviting them to contact the Manager’s office to find out about Chapel Hill. To date, two providers (LecStar Communications and Alltel) have contacted the Manager’s office and expressed interest. Representatives of LecStar and Alltel plan to do more research on the area and said that they would contact us for further information. We will follow up with these individuals regarding their plans and offer any assistance that we can.
Triangle J Involvement. Representatives of the Triangle J Council of Governments attended both meetings with BellSouth and Verizon and have offered their support (Attachment 4).
Manager’s Office staff will stay in contact with the Utilities Commission staff regarding progress on the Extended Area Service study and any potential hearings on that subject. We understand that the required cost studies have begun.
We believe that the customer service issues voiced by Verizon customers have largely been resolved, based on the information provided to us by Verizon and on the reduction in complaints we have received from citizens. However, we will inform Verizon of any further complaints that we receive in those areas.
We also believe that there is nothing further that the Council can do regarding boundary lines at this time, given that the companies do not see the option as economically feasible and that the Utilities Commission is unable to require any change.
We believe that the issue of directory assistance and the provision of free telephone directories has been satisfactorily addressed by both companies. The companies have committed to following up on further customer needs and are agreeable to receiving future suggestions from the Manager’s Office.
We will also stay in contact with other telephone companies who may be interested in providing local service in Chapel Hill.
Later in the year, we will return to the Council with a follow-up report on EAS and other telephone service matters.
1. Response from BellSouth (p. 7).
2. Response from Verizon (p. 10).
3. February 2, 2001 letter to Mayor Waldorf from Jo Anne Sanford, Chair of the N.C. Utilities Commission (p. 13).
4. November 16, 2000 letter to Mayor Waldorf from Dee Freeman, Executive Director of Triangle J Council of Governments (p. 17).
5. October 23, 2000 Status Report on Telephone Service Issues (p. 18).
6. October 23, 2000 Report from Meeting with Legislators on Telephone Issues (p. 27).