Phil Nyegaard Public 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

5 Advantages of EAS  Cheaper calling for some customers to neighboring exchanges  Minimizes impacts of outdated exchange boundaries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

7 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

9 Individual EAS Route Process  Phase 1:  Petitioning  Community of Interest  Phase 2:  Costs/Rates  Staff Investigation  Stipulation  Commission Order  EAS Deployment

10 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

12

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

14 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

15 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

17 Commission Order  Would be issued after public comment phase  Would be issued about 12 months after region boundaries set

18 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

19 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

21 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

24 Rate Bands (continued) Current QWEST EAS Rate Matrix Business Rates EAS Band Accessible EAS Lines Residentia l Rates $7.49C600, ,000$4.97 $1.95A1 - 50,000$1.28 $3.27B50, ,000$2.20  29 exchanges in Band A  29 exchanges in Band B  6 exchanges in Band C

25 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

26 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?

27 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

29 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

30 … “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

31 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

32 Would Exchanges Outside Region be Allowed to Keep Current EAS Routes?  Yes, even though doing so permits “toll avoidance” strategy

33 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

34 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