Definition
The explicit Congressional charge to ensure affordability is a new obligation.39 The FCC's initial discussion of the definition of affordability, in the Notice of Proposed Rulemaking (NPRM) on universal service, highlights the inherent difficulty of this concept. The FCC begins by citing a definition of "affordable" that invokes both an absolute and a relative concept of affordability:
Webster's New World Dictionary defines the term afford as follows: "to have enough or the means for; bear the cost of without serious inconvenience."40The first definition ("have enough or the means for") is an absolute concept in the sense that there is no qualifier. No matter how much it hurts, if a subscriber continues to pay for telecommunications service, telephone service is deemed by implication to be affordable. The second definition ("bear the cost of without serious inconvenience") is relative in the sense that the burden imposed is qualified by the term serious inconvenience. If it hurts a lot to pay for telephone service, it is not deemed affordable, even though the subscriber continues to pay for it.
Although the dictionary definition cited by the FCC clearly has two aspects, the NPRM goes on to refer only to the absolute connotation of affordability: "For example, one such measure might be the level of telecommunications service subscribership among targeted populations."41 In fact, the NPRM repeatedly refers to the penetration rate as the measure of affordability.42
More recent editions of Webster's cite the relative concept as the primary definition of affordable:
(1) (a) to manage to bear without serious detriment; (b) to manage to pay for or incur the cost of.43
(1) (a) to manage to bear without serious detriment; (b) to be able to bear the cost of.44
Random House provides a similar definition.
(1) to be able to undergo, manage, or the like without serious consequence; (2) to be able to meet the expense of or spare the price of.45Thus the standard should not be whether one can pay the price, but whether that price causes serious detriment, consequence, or inconvenience.
Consumer advocates reject a narrow definition of universal service as simple access to the phone because the telephone is a necessity, and people will cling to it despite economic hardship.46 Even if households do not drop off the network, we must still ask--at the end of the twentieth century--whether people are able to use the phone as the basic means of communication. For the past half century we have woven the phone into the fabric of daily life. We have let decisions about where to live, where to locate services, how to acquire information, and how to allocate our time be fundamentally influenced by the degree of access to unlimited local calls. The telephone is the mainstay of daily communications, a foundation of economic,47 social,48 and political life.49
Given the tremendous importance of the telephone, it does not suffice to say that if a household has a phone, it must be affordable, regardless of how much of a burden it places on the household budget.50 Affordability is more complex than that. In this context the test of affordability is not simply whether people keep the phone, or whether they use it, but how much of a burden a reasonable level of consumption of this vital necessity places on the household budget.
Measurement
Quantitative measures of the relative concept of affordability involve estimating the percentage of income that households might be forced to spend for service at various income levels and rate levels (see the Consumer Expenditure Survey compiled by the Bureau of Labor Statistics).51 Qualitative measures include what people consider "too expensive" or "too much" to pay for telephone service. Examples of this measurement are levels of satisfaction and dissatisfaction with rates expressed in response to questions asked in opinion polls.52
Quantitative measures of the absolute concept of affordability include penetration rates, as compiled by the Current Population Survey conducted by the Census Bureau. We can also find qualitative measures, where people are asked why they do not have, or have given up, telephone service. Examples of this measurement include the national study conducted by the American Association of Retired Persons and the Consumer Federation of America.53
Table 3.1 and figure 3.1 present quantitative data from late 1994 to demonstrate two aspects of affordability. They show the percentage of households at various income levels that do not subscribe to telephone service and the percentage of income that basic service charges represents for households with telephone service. From this data we find the following:
- Among households with income less than $5,000, we observe that almost 23 percent do not have telephone service.
- On a national average basis, a household with an income of $2,500 would be forced to pay 9 percent of that income to obtain service.
- The percentage of households without telephone service declines steadily as income rises, as does the percentage of income required to pay for service.
- For households with incomes between $10,000 and $12,500, about 9.3 percent do not have telephone service ($12,500 being approximately the upper limit of poverty-level income for multi-person households).
- The percentage of households without telephone service drops rapidly as income rises above this level.
- At an income level of $25,000 the percentage of households with telephones exceeds 90 percent.
- Penetration rates stabilize at more than 98 percent when income reaches $35,000.
- At this level basic monthly service costs consume about .7 percent of household income.
Based on this data, we can suggest a rule of thumb for affordability, measured as penetration and burden. First, because we observe that at high levels of income approximately 99 percent of all households have telephone service, it is reasonable to assume that if the cost of service were not a burden, 99 percent of all households would have service. ("High" levels of income in this case start at $35,000--very firmly in the middle class.)
We can flip this observation around to note that the overwhelming majority of households without telephone service are low-income households. For example, although 23 percent of households have income less than $12,500, we find that 61 percent of those without telephone service are in this group. If a household has an income less than $12,500, it is 10 times more likely to lack telephone service than a household with an income more than $35,000.
Second, we have observed across time that only when the cost of service drops to less than 1 percent of income in the aggregate does the telephone penetration rate begin to exceed 90 percent. Now we observe in a more disaggregated approach that penetration rates of 99 percent are consistently achieved only when the cost falls to less than 1 percent of income--to about .7 percent. Thus .7 percent of income would seem to be a target level for cost, if universal service is to be achieved. Figure 3.2 shows that this is a demanding goal. For lower income groups .7 percent of income is a relatively small figure, compared with current national average rates. For the lowest income category .7 percent of income is only $1 to $3 per month. Even at the limit of poverty level income ($12,500), .7 percent of income is just more than $7 per month, less than half of the national average rate for local telephone service.
For households at the lower end of income distribution, telephone service is simply not affordable by both measures of affordability--the percentage of households without telephone service and the burden that having telephone service places on household budgets. Large percentages of households at this income level do not subscribe to service, and those that do are forced to devote a disproportionately large share of their income to pay for basic service.
The fundamental commitment to just and reasonable rates has driven the overall affordability of telephone service. In the historical development of telephone subscribership and in the new law, just and reasonable rates underlie affordability for the vast majority of consumers. With this in mind, it does not seem overly optimistic to look at the expanded provisions for universal service in the 1996 Act as a means for just and reasonable rates for all.
Source for figures 3.1 and 3.2
U.S. Bureau of the Census, Current Population Survey, November 1994.
www.benton.org/Library/Prospects/goals.html