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GAO Issues Related to Local Telephone Service

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GAO Issues Related to Local Telephone Service United States General Accounting Office Report to the Ranking Minority Member, GAO Committee on Commerce, Science, and Transportation, U.S. Senate August 2000 TELECOMMUNICATIONS Issues Related to Local Telephone Service GAO/RCED-00-237 Contents Letter 3 Appendixes Appendix I: Scope and Methodology 30 Appendix II: Trends for Percent of Customers Dissatisfied, 1996 and 1999 32 Appendix III: GAO Contacts and Staff Acknowledgements 51 Tables Table 1: Estimated Access Lines Sold in Rural Areas, January 1996-April 2000 11 Table 2: Estimated Percent of Rural Access Lines Involved in Pending Sales 16 Table 3: Percent of Residential Customers Dissatisfied With Installation Services, 1996-99 33 Table 4: Percent of Residential Customers Dissatisfied With Repair Services, 1996-99 35 Table 5: Percent of Residential Customers Dissatisfied With Business Office Services, 1996-99 37 Table 6: Percent of Small Business Customers Dissatisfied With Installation Services, 1996-99 39 Table 7: Percent of Small Business Customers Dissatisfied With Repair Services, 1996-99 41 Table 8: Percent of Small Business Customers Dissatisfied With Business Office Services, 1996-99 43 Table 9: Percent of Large Business Customers Dissatisfied With Installation Services, 1996-99 45 Table 10: Percent of Large Business Customers Dissatisfied With Repair Services, 1996-99 47 Table 11: Percent of Large Business Customers Dissatisfied With Business Office Services, 1996-99 49 Figures Figure 1: States Where Major ILECs Sold Access Lines, January 1996-April 2000 10 Figure 2: Access Lines Sold by Major ILECs in Rural and Nonrural Areas January 1996—April 2000 12 Figure 3: Rural and Nonrural Access Lines Sold by Major ILECs January 1996—April 2000 13 Figure 4: Estimated Rural Access Lines Sold by Major ILECs, January 1996-April 2000 14 Page 1 GAO/RCED-00-237 Local Telephone Services Contents Figure 5: States With Pending Sales of Access Lines, as of April 2000 15 Figure 6: Timeline of DSL Development Activities 19 Figure 7: Complaints per 1,000 Access Lines for Major ILECs, 1996-99 24 Figure 8: Total Customer Complaints Per 1,000 Lines, 1996-99 25 Figure 9: Business Versus Residential Customer Complaints, 1999 27 Figure 10: Percent of Residential Customers Dissatisfied With Installation Services, 1996-99 34 Figure 11: Percent of Residential Customers Dissatisfied With Repair Services, 1996-99 36 Figure 12: Percent of Residential Customers Dissatisfied With Business Office Services, 1996-99 38 Figure 13: Percent of Small Business Customers Dissatisfied With Installation Services, 1996-99 40 Figure 14: Percent of Small Business Customers Dissatisfied With Repair Services, 1996-99 42 Figure 15: Percent of Small Business Customers Dissatisfied With Business Office Services, 1996-99 44 Figure 16: Percent of Large Business Customers Dissatisfied With Installation Services, 1996-99 46 Figure 17: Percent of Large Business Customers Dissatisfied With Repair Services, 1996-99 48 Figure 18: Percent of Large Business Customers Dissatisfied With Business Office Services, 1996-99 50 Abbreviations ADSL asymmetric form of DSL ARMIS FCC's Automated Reporting Management Information System CLECs Competitive local exchange carriers DSL digital subscriber line FCC Federal Communications Commission ILECs incumbent local exchange carriers Page 2 GAO/RCED-00-237 Local Telephone Services United States General Accounting Office Resources, Community, and Washington, D.C. 20548 Economic Development Division B-285105 Leter August 31, 2000 The Honorable Ernest F. Hollings Ranking Minority Member Committee on Commerce, Science, and Transportation United States Senate Dear Senator Hollings: As you know, the Telecommunications Act of 1996 fundamentally changed the laws and regulations governing the telecommunications industry. Through this act, the Congress sought to increase competition in local telephone service and reduce regulation in order to secure lower prices and higher quality services for consumers and to encourage the rapid deployment of new telecommunications technologies, such as digital subscriber line (DSL), which, among other things, enables high-speed access to the Internet. Overall, the time since the act’s passage has been characterized by significant adjustments for regulators, companies, and consumers. A variety of companies, including incumbent telephone companies and new competing carriers, have spent considerable resources responding to the incentives and obligations created by the act. They have pursued new business plans, developed new technologies, invested in new facilities, restructured their businesses through mergers, and otherwise refocused their companies toward the future. One aspect of these activities involves the sale of telephone facilities, including access lines (that is, the connection between customers and a local telephone company’s central office),1 in rural areas—those areas outside of a metropolitan statistical area.2 1 Sales of telephone facilities typically include the sales of access lines, local switches, and trunks. The local switches connect access lines for the duration of the telephone calls, and trunks connect one local switch to another or to the long distance network. The size of a telephone facility sale is expressed by the number of access lines served. 2 The general concept of a metropolitan statistical area is that of a core area containing a large population nucleus, together with adjacent communities having a high degree of economic and social integration with that core. The current standards provide that each newly qualifying metropolitan statistical area must include at least one city with 50,000 or more inhabitants, or a Census Bureau-defined urbanized area (of at least 50,000 inhabitants) and a total metropolitan population of at least 100,000 (75,000 in New England). Page 3 GAO/RCED-00-237 Local Telephone Service B-285105 This report responds to your request for information on three issues that relate to developments in the local telephone service market:3 • the number of rural access lines that have been sold since the act’s passage by large incumbent local exchange carriers, known as major ILECs;4 • the development of DSL technology and the basis for variations in its rate of deployment; and • the quality of local telephone service, as indicated by customer complaints and customer survey data reported to the Federal Communications Commission (FCC) by the major ILECs. To respond to the first issue, we reviewed FCC data on sales of access lines by the major ILECs since 1996. Per your request, we considered ILECs with more than 2 percent of the total telephone access lines in the United States as “major.” Thus, our study included the Regional Bells, GTE, and Sprint/United, which together owned 92 percent of the access lines in the nation as of December 31, 1998. We also surveyed 51 state utility commissions (50 states and the District of Columbia) to obtain information on access line sales approved by the commissions and on those still pending their approval.5 Our survey of state utility commissions, with its 100-percent response rate, also allowed us to collect information (which was not readily available from other sources) on the estimated number of access lines sold in rural areas—those areas outside of metropolitan statistical areas. To address the second issue, we reviewed publications by FCC and others on the development of DSL, and we spoke with communications industry officials and experts about trends in DSL deployment. For the third issue, we analyzed two different service quality indicators: (1) customer complaint data and (2) customer dissatisfaction survey data. Both indicators are compiled by the major ILECs and reported 3 Local telephone service includes calls that are made within a designated geographic area or locality without paying long distance charges. 4 ILECs include the Regional Bells as well as many other independent local telephone carriers that were providing local telephone service before the 1996 act was passed. We considered ILECs with more than 2 percent of the total telephone access lines in the United States as “major.” 5 We report sales in the year the state utility commission approved them. For most sales, FCC must subsequently approve a waiver to change an ILEC’s geographic service area. FCC granted waivers for all sales by major ILECs that required waivers and were approved by state utility commissions from 1996 through 1999. Page 4 GAO/RCED-00-237 Local Telephone Service B-285105 to FCC. We also reviewed studies on quality-of-service issues that FCC developed from its own analysis of the telephone company data. Our scope and methodology are discussed in more detail in appendix I. Results in Brief Of the nearly 832,000 access lines sold by major ILECs from January 1996 through April 2000, an estimated 68 percent were in rural areas, according to state utility commission officials.6 The estimated 562,000 rural access lines sold represented only 2 percent of the major ILECs’ total rural access lines in 1999. After a steady annual decline in sales of access lines from 1997 through 1999, the first 4 months of 2000 saw a dramatic increase in sales, particularly in rural areas. In fact, the number of rural access lines sold from January through April 2000 already exceeds the total number of rural lines sold during the previous 4 years. The sharp increase in rural sales appears to be continuing. GTE and US WEST have sales pending with state utility commissions or FCC involving a total of over 870,000
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