Phil NyegaardPublic Utility Commission

State of Oregon

January 11, 2006

Creating an Extended Area Service (EAS)

Region

2

Overview of Presentation

Explanation of EAS and process for getting it

EAS region process

Answers to specific questions

3

Defining Some Terms

Access Charge – A charge from local phone companies to long distance companies for use of their facilities

Exchange – The local calling area (Geographic area covered by flat local charge)

EAS Route – EAS between two exchanges Flat Rate – A constant monthly charge Measured Rate – A per minute charge Toll – Another word for long distance

4

What is EAS?

A replacement for long distance (toll) service

Inter-exchange service Two rate options:

Flat rate Measured rate Can switch back and forth for 6 months without

charge 2,008 EAS routes in Oregon 182 EAS routes in Lane, Linn, Benton, and

Lincoln counties If four county region created, 2,170 new

routes would be added

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Advantages of EAS

Cheaper calling for some customers to neighboring exchanges

Minimizes impacts of outdated exchange boundaries

6

Disadvantages of EAS

Necessarily involves raising some customer bills while lowering others

In a few cases, leads to local rate increases

EAS rates not uniform Customers of small companies generally pay

more

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EAS Regions vs Individual EAS Routes

Individual EAS Routes Most common form of EAS

Appropriate when a particular EAS route desired

Routes can be added incrementally

EAS Regions Two regions (Portland and Southern

Oregon) exist in Oregon

Appropriate when multiple exchanges all want uniform access to each other

8

Revenue Neutrality Policy

Adding EAS routes may not affect phone company earnings

Increased profits unacceptable to customers and PUC

Phone companies cannot be ordered to lose money

Reality of revenue neutrality: Higher bills for some customers Lower bills for others

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Individual EAS Route Process

Phase 1: Petitioning

Community of Interest

Phase 2: Costs/Rates

Staff Investigation

Stipulation

Commission Order

EAS Deployment

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EAS Region Process

In general terms, this is the process: Investigation opened if broad support from

cities, counties, and legislators is evident If there isn’t broad support, alternative region

could be proposed, or idea dropped Establish region boundaries Calculate EAS rates for all exchanges Present rates to customers at public

comment hearings and/or polling PUC decision based upon customer reaction Implementation of region, if authorized

No petitions required

11

Setting Region Boundaries

Input from four counties essential PUC would work with legislators to

create advisory task force Up to 12 members Comprised of affected citizens Task force would make

recommendations to the PUC Oregon law requires final boundary

decision to be made by PUC

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13

Calculation of EAS Rates (Cost Basis)

Some PUC-approved costs recovered through toll or access charges

EAS causes loss of toll and access revenues

EAS creates new costs EAS increases number and duration of calls Increased traffic requires new facilities New facilities are a cost of EAS

EAS rates = lost revenues + new costs

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Calculation of EAS Rates (Types)

Two types of EAS rates Flat rate (higher for business)

Measured rate

In a few cases, a local rate increase needed Only done to avoid high flat EAS rate

Has never happened for large phone companies

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Calculation of EAS Rates (Process)

Companies file proposed rates

Company rate proposal based on recent traffic (usage) data

PUC staff analyzes proposed rates and traffic data

PUC staff and companies negotiate rate stipulation

16

Presentation of Rates to Customers

Done at public comment hearings in

region

In some cases, customer balloting is

done

No EAS if rates unacceptable to

customers

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Commission Order

Would be issued after public comment phase

Would be issued about 12 months after region boundaries set

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Implementation of EAS Region

If region established by PUC, implementation would take up to six months Phone companies need time to plan and

install new facilities

Without new facilities, “fast busy” problem would occur

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Portland EAS Region

First EAS Region in Oregon 33 exchanges, operated by ten phone

companies – approximately one million access lines

Flat EAS Rates in Portland EAS Region Range from $2.20 to $21.35 for residential

service Range from $3.27 to $28.40 for business

service

Measured EAS rate 8 cents/minute or less

20

Southern Oregon EAS Region

Implemented in October 2004 18 exchanges, operated by four phone

companies – approximately 150,000 access lines

Flat EAS Rates in Southern Oregon EAS Region Range from $2.20 to $12.04 for residential

service Range from $3.27 to $24.08 for business

service

Measured EAS rate 6 cents/minute or less

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Proposed Four County EAS Region

Would involve ten phone companies Approximately 71% of affected access

lines served by Qwest

Would include 49 exchanges – approximately 246,000 access lines

Would actually cover slightly more than four counties

22

Area Code Observation

43 of 49 exchanges in four counties are in 541 area code

If the six (6) 503/971 exchanges included in EAS region, entire 541 area code would need to go to 10 digit dialing immediately 541 area code will go to 10 digit dialing in

about 2010 anyway

If the six (6) 503/971 exchanges dropped from proposed region, number of companies involved would drop from ten to six

23

Rate Bands

Telephone companies don’t set a unique EAS rate for each exchange

Instead they use EAS rate bands A company’s rate band applies to its entire

service territory The more people you can call toll free, the

higher your EAS rate

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Rate Bands (continued)

Current QWEST EAS Rate Matrix

Business

Rates

EASBand

AccessibleEAS Lines

Residential

Rates

$7.49C 600,001 - 999,000 $4.97

$1.95A 1 - 50,000 $1.28

$3.27B 50,001 - 600,000 $2.20

29 exchanges in Band A 29 exchanges in Band B 6 exchanges in Band C

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Rate Band Effect of a Four County EAS Expansion on Qwest

Eight exchanges would move from Rate Band A to B Corvallis, Eugene-Springfield, Florence, Mapleton,

Newport, Siletz, Toledo, and Jefferson All else equal, the residential EAS surcharge

for these exchanges would increase from $1.28 per month to $2.20 per month

Creation of new region would also increase rates to cover implementation costs Qwest customers outside of new region would see

higher rates, too Other telephone company rate bands would

produce a similar result

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Specific Questions

What would four county region rates be? Why not have a uniform flat rate for the

region? Would region “cherry picking” be allowed? Would there be a trial period for the EAS

region? Would exchanges outside region be allowed

to keep current EAS routes? Would exchanges outside region be allowed

new individual routes within region? How would the new region’s EAS rate

coordinate with Nationwide toll plans?

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What Would Four County Region Rates Be?

Rates cannot be calculated until final boundaries set

Portland and Southern Oregon rates provide general insights

Rates would vary among exchanges and companies

Flat rates would generally be higher for smaller companies because of smaller customer base

28

Why Not Have a Uniform Flat Rate for the Region?

This idea considered, but not adopted, for previous regions

Two major problems Companies do not have same costs

Costs would have to be pooled

High potential for unhappiness in Qwest exchanges because of higher bills despite lower costs

Could cause excessive use of measured rate

Ramifications for all Oregon EAS

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Would Region “Cherry Picking” be Allowed?

No. Customers/exchanges would have

access to uniform region

“Cherry picking” would add substantial

complexity:

Uniform 49 exchange region would require

2,352 analyses of traffic and engineering data

to set rates

Complex analyses of adequacy of facilities

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… “Cherry Picking” (continued)

Exchange “cherry picking” could require

Thousands of additional traffic analyses

More complex facility analyses

Customer “cherry picking” could require

Millions of traffic analyses

Even more complex facility analyses

Access to individual calling data

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Would There be a Trial Period for the EAS Region?

No. Allowing customers/exchanges to

drop out would change rates of

remaining customers

In extreme case, future of region could

be jeopardized

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Would Exchanges Outside Region be Allowed to Keep Current EAS

Routes?

Yes, even though doing so permits “toll

avoidance” strategy

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Would Exchanges Outside Region be Allowed New Individual Routes Within

Region?

No, because of “toll avoidance”

concerns

Outside exchanges would be allowed

to join entire region

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How Would the New Region’s EAS Rate Coordinate with Nationwide Toll Plans?

Many customers have a Nationwide Toll Plan

with their toll carrier. Maximum flat rate for unlimited nationwide

calling

Includes interstate calls and intrastate calls

EAS rate would be in addition to a

Nationwide Toll Plan Flat rate or Measured EAS is billed by local carrier

Nationwide Toll Plan is billed by toll carrier

Thank you for your time

This presentation and other EAS information is available at

www.puc.state.or.us