AGENDA #4c

MEMORANDUM

TO: Mayor and Town Council

FROM: W. Calvin Horton, Town Manager

SUBJECT: Update on Telephone Service Issues in the Chapel Hill-Durham Border Area

DATE: January 14, 2002

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 N.C. Utilities Commission has approved a zero-rate calling plan between Chapel Hill and Durham. This action effectively eliminated the Chapel Hill Border Plan effective January 1, 2002.

The Border Plan had required that Chapel Hill residents in the Verizon telephone service area choose either a Chapel Hill number or a Durham number, with local rates varying depending on their plan.

Many individuals have worked to make the zero-rate calling plan possible. We have included a resolution for the Council’s consideration, which thanks the Orange County Legislative Delegation, the N.C. Utilities Commission and its Public Staff, the representatives of BellSouth and Verizon, and the representatives of the Triangle J Council of Governments for their help in implementing zero-rate calling between Chapel Hill and Durham.

BACKGROUND AND INFORMATION

On November 26, the Manager provided the attached report, which summarized the status of telephone service in the Chapel Hill Border Area (Attachment 1). The report explained that on September 26 and October 6, Governor Easley signed Chapters 424 and 430 of North Carolina Session Laws 2001, which extensively revised the statutes governing the taxation of telecommunications services in North Carolina. The tax changes eliminate the 3.22% franchise tax on gross receipts for telephone service and have triggered telephone rate reductions. As part of the plan, telephone companies were 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 Although the franchise tax on gross receipts is being repealed, an equal portion of the uniform sales tax on telephone service will be distributed to local governments.]

On December 13, the Utilities Commission approved the rate plans submitted by BellSouth and Verizon that would provide zero-rate calling between Chapel Hill and Durham (Attachment 2). The plan 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).

The Utilities Commission’s report specifically states that the zero-rate plan “[W]ould represent a major step forward in the resolution of the Chapel Hill-Durham EAS (Extended Area Service) request now pending from the Town of Chapel Hill. It would also enable the dissolution of the Chapel Hill Border Plan.”

Timeline and Notice

Zero-rate calling became effective January 1, 2002, and is to be applied to bills dated on or after January 1.

By Utilities Commission order, each local exchange carrier is to notify its customers of its rate reductions by an insert in the January 2002 bill, or by a direct mailing sent to customers on or before January 15, 2002.

NEXT STEPS AND CONCLUSIONS

We will continue to monitor these developments and update the Council as needed. We recommend that the Council adopt the attached resolution thanking the Orange County Legislative Delegation, the N.C. Utilities Commission and its Public Staff, the representatives of BellSouth and Verizon, and the representatives of the Triangle J Council of Governments for their help in implementing zero-rate calling between Chapel Hill and Durham.

ATTACHMENTS

1. November 26, 2001 Memorandum to the Council (begin new p. 1).

2. December 13, 2001 State of North Carolina Utilities Commission, Docket No. P-100, SUB 149, “Order Ruling on Implementation Proposals” (p. 11).

3. December 14, 2001 BellSouth News Release, (p. 26).

A RESOLUTION THANKING THE ORANGE COUNTY LEGISLATIVE DELEGATION, THE N.C. UTILITIES COMMISSION AND ITS PUBLIC STAFF, THE REPRESENTATIVES OF BELLSOUTH AND VERIZON, AND REPRESENTATIVES OF THE TRIANGLE J COUNCIL OF GOVERNMENTS FOR THEIR HELP IN IMPLEMENTING ZERO-RATE CALLING BETWEEN CHAPEL HILL AND DURHAM (2002-01-14/R-4)

WHEREAS, many Chapel Hill residents have been required to choose between different telephone calling plans with varying rates to call Durham exchanges, often within their own neighborhoods; and

WHEREAS, a new State law will provide zero-rate calling between Chapel Hill and Durham; and

WHEREAS, the N.C. General Assembly made zero-rate calling possible by approving revisions to the State tax code, eliminating the telecommunications gross receipts tax that local telephone companies pay and mandating that the savings be used to benefit customers; and

WHEREAS, the Orange County Legislative Delegation supported these tax revisions; and

WHEREAS, the N.C. Utilities Commission, acting on the tax revision plan and on recommendations of its Public Staff, granted permission to BellSouth and Verizon to implement zero-rate calling for Chapel Hill and Durham; and

WHEREAS, representatives of BellSouth and Verizon have worked to implement these changes by January 1, 2002, and have worked with citizens, elected officials, and Town staff to resolve telephone service issues; and

WHEREAS, representatives of the Triangle J Council of Governments have shown consistent support for the implementation of a zero-rate calling plan;

NOW, THEREFORE, BE IT RESOLVED by the Council of the Town of Chapel Hill that the Council hereby thanks our Legislative Delegation, the N.C. Utilities Commission and its Public Staff, the representatives of BellSouth and Verizon, and representatives of the Triangle J Council of Governments for their help in implementing zero-rate calling between Chapel Hill and Durham.

This the 14^th day of January, 2002.