CenturyLink Seeks Unlimited Authority in Setting Residential Phone Rates

CenturyLink is asking the Oregon Public Utility Commission (OPUC) to approve a price plan that would allow them to set prices, for basic residential telephone service, without any Commission imposed pricing parameters. If CenturyLink gets its way, it would have complete discretion as to when and how much to raise its rates for basic residential telephone service, thus removing the protection of the OPUC to ensure that its rates are fair, just, and reasonable. This is a big departure from the way that CenturyLink’s rates for basic residential phone service are set today. In CUB’s opinion, the proposed change would put residential customers at risk of sky-rocketing rates.

Telecommunications companies, like CenturyLink, are not regulated in the same way that energy utilities, like PGE, Pacific Power, and NW Natural, are regulated. The rates of energy utilities in Oregon are set by the OPUC, which bases its energy regulation decisions on the utilities’ prudently-incurred costs as well as their legal right to earn reasonable returns on their capital investments. Unlike the energy regulation model, telecommunications carriers like CenturyLink that provide basic, local telephone service (the “old fashioned” kind with copper wires in the ground) have the option of being regulated by an alternative form of regulation, called “price cap regulation.”

Under price cap regulation, the OPUC does not take into account the carrier’s costs or return on investment. Instead, the OPUC regulates the prices charged by the telecommunications carrier by setting a “price cap” that the carrier is not allowed to exceed when setting charges. Although the OPUC must find that a plan ensures just and reasonable prices for telecommunications services before approving it for price caps, the carrier has the ability to raise or lower prices between the predetermined price floor and price cap as often as it likes.

In 2008, the OPUC granted CenturyLink’s petition for a price cap plan and set the price caps that CenturyLink has been subject to for the past six years. But in January of this year, CenturyLink asked the Commission for something different: to completely eliminate the price caps for basic, residential phone service as well as other related services like caller ID, unlisted numbers, and call trace. This means that the OPUC, if it approves CenturyLink’s request, would no longer set a price cap for CenturyLink’s basic residential phone service and common calling features, and the company would have the discretion to raise its rates for these services at its own discretion, without having to petition the OPUC first or to prove the need for the price increase.

CenturyLink argues that the OPUC should approve its request because there are enough alternatives available in its service territory for customers to choose if they don’t like the service and/or prices that CenturyLink is offering—in short, they argue that there’s enough competitive customer choice between various types of service including voice over internet protocol (VoIP, which provides phone service over an internet connection) and wireless. CUB does not buy this argument for a number of reasons:

First, CUB is concerned about CenturyLink’s “captive” customers—meaning those customers that either don’t have a good alternative to the basic phone service that CenturyLink provides, or do have alternatives but aren’t aware of them. If price caps are removed from CenturyLink’s price plan, these customers will be subject to monopoly abuse because the OPUC regulation that has protected them for decades will no longer be in place.

Elderly customers are particularly vulnerable in this regard. A recent study by AARP reported that 70% of Americans ages 40 and older currently have landline telephone service in their homes, with over half of those landline users utilizing traditional copper-wire technology. According to the AARP study, “When asked to think about the next 12 months…, almost 80 percent said they were not too or not at all likely to disconnect landline service” in favor of switching to wireless. When asked why they were very likely to keep their landline service, respondents replied “in case of emergency” and “wireless service is not dependable or available where they live.” According to information reported by the Center for Disease Control and Prevention’s National Health Interview Survey, for populations aged 45 and above, wireless phone service is not seen as a viable substitute for traditional landline phone service.

Customers living in remote areas are another type of captive customer. These customers are vulnerable to monopoly abuse because they simply don’t have good alternatives to the service that CenturyLink provides. Alternatives are available in some metropolitan areas in Oregon such as Portland, Salem, and Eugene, where competition for customers is more fierce, but it’s not uncommon for folks in more remote and sparsely populated areas to have only one option for traditional residential phone service.

CUB is also concerned for the safety of customers who may be forced to switch to wireless or VoIP if or when their traditional landline service becomes unaffordable due to the elimination of Centurylink’s price caps. Why is this a safety issue? The answer lies in the fact that grounded copper wires are much more reliable in emergencies, especially those involving a long-term loss of power, because unlike wireless phones or internet devices, copper wire lines do not rely on electric power to function. Therefore, forcing customers to rely on wireless or VoIP to reduce their costs means that they may not be able to contact emergency officials in the event that they face a critical emergency during a power outage.

In short, CUB believes that CenturyLink’s proposal to the OPUC to remove the price caps from its price plan would likely serve to harm customers, and is contrary to law and sound policy. If you share these or similar concerns, we encourage you to write to the OPUC and urge them to reject CenturyLink’s proposal. You can write to the OPUC at:

Public Utility Commission of Oregon
Attn: docket UM 1354
Administrative Hearings
P.O. Box 1088
Salem, OR 97308

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