1. Phil Nyegaard Public Utility Commission State of Oregon January 11, 2006 Creating an Extended Area Service (EAS) Region

2. 2 Overview of Presentation  Explanation of EAS and process for getting it  EAS region process  Answers to specific questions

3. 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. 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5. 5 Advantages of EAS  Cheaper calling for some customers to neighboring exchanges  Minimizes impacts of outdated exchange boundaries

6. 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. 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. 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. 9 Individual EAS Route Process  Phase 1:  Petitioning  Community of Interest  Phase 2:  Costs/Rates  Staff Investigation  Stipulation  Commission Order  EAS Deployment

10. 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. 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. 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. 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. 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. 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. 17 Commission Order  Would be issued after public comment phase  Would be issued about 12 months after region boundaries set

18. 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. 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. 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. 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. 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. 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. 24 Rate Bands (continued) Current QWEST EAS Rate Matrix Business Rates EAS Band Accessible EAS Lines Residentia l Rates $7.49C600,001 - 999,000$4.97 $1.95A1 - 50,000$1.28 $3.27B50,001 - 600,000$2.20  29 exchanges in Band A  29 exchanges in Band B  6 exchanges in Band C

25. 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. 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. 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. 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. 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. 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. 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. 32 Would Exchanges Outside Region be Allowed to Keep Current EAS Routes?  Yes, even though doing so permits “toll avoidance” strategy

33. 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. 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

35. Thank you for your time This presentation and other EAS information is available at www.puc.state.or.us