I found this a good discussion of rates and subsidies

[David Farber <farber () central cis upenn edu>]

Date: Wed,  5 Jan 1994 10:39:45 -0500 (EST)
From: Marvin Sirbu <ms6b+ () andrew cmu edu>
Subject: Re: a "keeper of the Internet"


>  Or, for example, what I consider to be the
> exhorbitant connection charges foisted off on local phone users in the form
> of "supplemental line charges" and the long-distance rates -- again, largely
> a subsidy in the form of a settlement to the local telcos.
> .
> .
> .


> Why?  Because the local telcos <can get away with it>, since they have
> monopoly power in a given local calling area.  To that I say "barf".


> For a good example of the way monopolies work check this out:
>       24 POTS lines from IBT:                 $  360 a month
>       1 T1 from IBT, point-to-point:          $1,000 a month


> Now, why is this?  24 POTS lines take the same bandwidth as a T1 in the
> telco equipment.... <and> require a channel bank full of cards and 22 more
> pairs of copper to get to me to boot!


> The wonder of monopolies.


Payments from long distance companies to local companies are indeed
subsidies.  They are part of a government mandated public policy that
says long distance users should subsidize basic local calling rates.
This same public policy says T1 lines should not be subsdized.  So, it
is not suprising that 24 POTS lines that are sold below cost due to
subsidies from long distance should be cheaper than 1 T1 line point to
point.


The T1 price is also based on rate averaging.  The point-to-point T1
link costs $1,000 whether the two points are both next door to the
Central Office, or each 5 miles away.  Most LECs would be happy to
de-average their T1 rates if the regulators would permit it.  But  you
won't like the resultant rates if you live out in the boonies....


If you have a problem with this policy, take it up with your local PUC
and the FCC.  The LECs would be more than happy to reduce access charges
and intra-LATA toll and raise local telephone rates to their true,
unsubsidized price.  That would enable them to compete more effectively
with MCI and the like for intra-LATA revenue. In California, they have
finally persuaded the PUC to begin to reduce the subsidies.  As a
result, when the plan takes effect, local rates will go up by 80% and
intra-LATA toll rates will go down by about 40%.


Marvin Sirbu