Telecommunications: Issues Related to Local Telephone Service (Letter
Report, 08/31/2000, GAO/RCED-00-237).

Pursuant to a congressional request, GAO provided information on
developments in the local telephone service market, focusing on the: (1)
number of rural access lines that have been sold since the
Telecommunications Act's passage by large incumbent local exchange
carriers (ILEC); (2) development of digital subscriber line (DSL)
technology and the basis for variations in its rate of deployment; and
(3) quality of local telephone service, as indicated by customer
complaints and customer survey data reported to the Federal
Communications Commission (FCC) by the major ILECs.

GAO noted that: (1) of the nearly 832,000 access lines sold by major
ILECs from January 1996 through April 2000, an estimated 68 percent were
in rural areas, according to state utility commission officials; (2) the
estimated 562,000 rural access lines sold represented only 2 percent of
the major ILECs' total rural access lines in 1999; (3) after a steady
annual decline in sales of access lines from 1997 through 1999, the
first 4 months of 2000 saw a dramatic increase in sales, particularly in
rural areas; (4) in fact, the number of rural access lines sold from
January through April 2000 already exceeds the total number of rural
lines sold during the previous 4 years; (5) the sharp increase in rural
sales appears to be continuing; (6) GTE and US WEST have sales pending
with state utility commissions or FCC involving a total of over 870,000
additional rural access lines; (7) according to GTE and US WEST
officials, their companies made business decisions to sell access lines
at several times in the past; (8) FCC, on the other hand, believes that
most of the delay is the result of the negotiation process between the
ILEC and potential purchasers, rather than the state and federal
approval processes; (9) DSL technology was initially developed in the
late 1980s and tested in the early 1990s as a means for providing video
services over the telephone network; (10) in the mid-1990s, as the
Internet began to surge in popularity, technical trials were conducted
by several telephone companies to assess the feasibility of using the
asymmetric form of DSL (ADSL) for high-speed Internet access; (11)
although the commercial availability of ADSL did not begin for nearly 10
years after its development, telephone companies have rapidly deployed
DSL over the past 3 years; (12) ILECs intensified their ADSL deployment
in response to both the ADSL deployment by competitive local exchange
carriers, and the cable industry's foray into Internet access with cable
modem service; (13) a number of communications industry officials and
some industry experts told GAO that ADSL deployment did not occur sooner
because the ILECs were concerned about potential harm to revenues
generated by other existing high-speed telephone services, and because
of the unproven nature of the technology; and (14) several ILEC
officials told GAO that ADSL was not deployed sooner because trials of
ADSL for delivery of video services had been unsuccessful, the
technology had various technical limitations, and federal regulations
that had been issued for ADSL lines serve as a disincentive to its more
rapid deployment.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  RCED-00-237
     TITLE:  Telecommunications: Issues Related to Local Telephone
	     Service
      DATE:  08/31/2000
   SUBJECT:  Telecommunication industry
	     Customer service
	     Telephone
	     Telecommunication
IDENTIFIER:  FCC Automated Reporting Management Information System
	     Internet

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GAO/RCED-00-237

Appendix I: Scope and Methodology

30

Appendix II: Trends for Percent of Customers Dissatisfied,
1996 and 1999

32

Appendix III: GAO Contacts and Staff Acknowledgements

51

Table 1: Estimated Access Lines Sold in Rural Areas,
January 1996-April 2000 11

Table 2: Estimated Percent of Rural Access Lines Involved in
Pending Sales 16

Table 3: Percent of Residential Customers Dissatisfied With
Installation Services, 1996-99 33

Table 4: Percent of Residential Customers Dissatisfied With
Repair Services,
1996-99 35

Table 5: Percent of Residential Customers Dissatisfied With
Business Office Services, 1996-99 37

Table 6: Percent of Small Business Customers Dissatisfied With Installation
Services, 1996-99 39

Table 7: Percent of Small Business Customers Dissatisfied
With Repair Services, 1996-99 41

Table 8: Percent of Small Business Customers Dissatisfied
With Business Office Services, 1996-99 43

Table 9: Percent of Large Business Customers Dissatisfied With Installation
Services, 1996-99 45

Table 10: Percent of Large Business Customers Dissatisfied
With Repair Services, 1996-99 47

Table 11: Percent of Large Business Customers Dissatisfied
With Business Office Services, 1996-99 49

Figure 1: States Where Major ILECs Sold Access Lines,
January 1996-April 2000 10

Figure 2: Access Lines Sold by Major ILECs in Rural and
Nonrural Areas January 1996--April 2000 12

Figure 3: Rural and Nonrural Access Lines Sold by Major
ILECs January 1996--April 2000 13

Figure 4: Estimated Rural Access Lines Sold by Major ILECs,
January 1996-April 2000 14

Figure 5: States With Pending Sales of Access Lines, as of
April 2000 15

Figure 6: Timeline of DSL Development Activities 19

Figure 7: Complaints per 1,000 Access Lines for Major ILECs,
1996-99 24

Figure 8: Total Customer Complaints Per 1,000 Lines, 1996-99 25

Figure 9: Business Versus Residential Customer Complaints, 1999 27

Figure 10: Percent of Residential Customers Dissatisfied With
Installation Services, 1996-99 34

Figure 11: Percent of Residential Customers Dissatisfied With
Repair Services, 1996-99 36

Figure 12: Percent of Residential Customers Dissatisfied With
Business Office Services, 1996-99 38

Figure 13: Percent of Small Business Customers Dissatisfied With
Installation Services, 1996-99 40

Figure 14: Percent of Small Business Customers Dissatisfied
With Repair Services, 1996-99 42

Figure 15: Percent of Small Business Customers Dissatisfied
With Business Office Services, 1996-99 44

Figure 16: Percent of Large Business Customers Dissatisfied With
Installation Services, 1996-99 46

Figure 17: Percent of Large Business Customers Dissatisfied
With Repair Services, 1996-99 48

Figure 18: Percent of Large Business Customers Dissatisfied
With Business Office Services, 1996-99 50

ADSL asymmetric form of DSL

ARMIS FCC's Automated Reporting Management Information System

CLECs Competitive local exchange carriers

DSL digital subscriber line

FCC Federal Communications Commission

ILECs incumbent local exchange carriers

Resources, Community, and
Economic Development Division

B-285105

August 31, 2000

The Honorable Ernest F. Hollings
Ranking Minority Member
Committee on Commerce, Science,
and Transportation
United States Senate

Dear Senator Hollings:

As you know, the Telecommunications Act of 1996 fundamentally changed the
laws and regulations governing the telecommunications industry. Through this
act, the Congress sought to increase competition in local telephone service
and reduce regulation in order to secure lower prices and higher quality
services for consumers and to encourage the rapid deployment of new
telecommunications technologies, such as digital subscriber line (DSL),
which, among other things, enables high-speed access to the Internet.
Overall, the time since the act's passage has been characterized by
significant adjustments for regulators, companies, and consumers. A variety
of companies, including incumbent telephone companies and new competing
carriers, have spent considerable resources responding to the incentives and
obligations created by the act. They have pursued new business plans,
developed new technologies, invested in new facilities, restructured their
businesses through mergers, and otherwise refocused their companies toward
the future. One aspect of these activities involves the sale of telephone
facilities, including access lines (that is, the connection between
customers and a local telephone company's central office),1 in rural
areas--those areas outside of a metropolitan statistical area.2

This report responds to your request for information on three issues that
relate to developments in the local telephone service market:3

ï¿½ the number of rural access lines that have been sold since the act's
passage by large incumbent local exchange carriers, known as major ILECs;4

ï¿½ the development of DSL technology and the basis for variations in its rate
of deployment; and

ï¿½ the quality of local telephone service, as indicated by customer
complaints and customer survey data reported to the Federal Communications
Commission (FCC) by the major ILECs.

To respond to the first issue, we reviewed FCC data on sales of access lines
by the major ILECs since 1996. Per your request, we considered ILECs with
more than 2 percent of the total telephone access lines in the United States
as "major." Thus, our study included the Regional Bells, GTE, and
Sprint/United, which together owned 92 percent of the access lines in the
nation as of December 31, 1998. We also surveyed 51 state utility
commissions (50 states and the District of Columbia) to obtain information
on access line sales approved by the commissions and on those still pending
their approval.5 Our survey of state utility commissions, with its
100-percent response rate, also allowed us to collect information (which was
not readily available from other sources) on the estimated number of access
lines sold in rural areas--those areas outside of metropolitan statistical
areas. To address the second issue, we reviewed publications by FCC and
others on the development of DSL, and we spoke with communications industry
officials and experts about trends in DSL deployment. For the third issue,
we analyzed two different service quality indicators: (1) customer complaint
data and (2) customer dissatisfaction survey data. Both indicators are
compiled by the major ILECs and reported to FCC. We also reviewed studies on
quality-of-service issues that FCC developed from its own analysis of the
telephone company data. Our scope and methodology are discussed in more
detail in appendix I.

Of the nearly 832,000 access lines sold by major ILECs from January 1996
through April 2000, an estimated 68 percent were in rural areas, according
to state utility commission officials.6 The estimated 562,000 rural access
lines sold represented only 2 percent of the major ILECs' total rural access
lines in 1999. After a steady annual decline in sales of access lines from
1997 through 1999, the first 4 months of 2000 saw a dramatic increase in
sales, particularly in rural areas. In fact, the number of rural access
lines sold from January through April 2000 already exceeds the total number
of rural lines sold during the previous 4 years. The sharp increase in rural
sales appears to be continuing. GTE and US WEST have sales pending with
state utility commissions or FCC involving a total of over 870,000
additional rural access lines. According to GTE and US WEST officials, their
companies made business decisions to sell access lines at several times in
the past. FCC, on the other hand, believes that most of the delay is the
result of the negotiation process between the ILEC and potential purchasers,
rather than the state and federal approval processes.

DSL technology was initially developed in the late 1980s and tested in the
early 1990s as a means for providing video services over the telephone
network. In the mid-1990s, as the Internet began to surge in popularity,
technical trials were conducted by several telephone companies to assess the
feasibility of using the asymmetric form of DSL (ADSL) for high-speed
Internet access. Although the commercial availability of ADSL did not begin
for nearly 10 years after its development, telephone companies have rapidly
deployed DSL over the past 3 years. ILECs intensified their ADSL deployment
in recent months in response to both the ADSL deployment by competitive
local exchange carriers, known as CLECs, and the cable industry's foray into
Internet access with cable modem service. A number of communications
industry officials and some industry experts told us that ADSL deployment
did not occur sooner because the ILECs were concerned about potential harm
to revenues generated by other existing high-speed telephone services, and
because of the unproven nature of the technology. Several ILEC officials
told us that ADSL was not deployed sooner because trials of ADSL for
delivery of video services had been unsuccessful, the technology had various
technical limitations, and federal regulations that had been issued for ADSL
lines serve as a disincentive to its more rapid deployment.

We reviewed two key indicators that raise concerns about the quality of
telephone service. First, the number of customer complaints to state and
federal regulators about the quality of local telephone service fell
slightly between 1996 and 1997 but increased after 1997 to a significantly
higher level than that in 1996, as measured by the number of complaints per
1,000 access lines filed with state utility commissions and FCC. The
increases are attributable to higher complaint levels for five of the eight
major ILECs included in our analysis of complaint data. Second, according to
telephone companies' own customer surveys for 1996 through 1999, there is no
clear trend in the overall level of customer dissatisfaction; the levels
vary from company to company by the type of customer and type of service.
However, most of the major ILECs experienced increases in customer
dissatisfaction in 1999 (the most recent available data) compared with 1998.

AT&T's domination of the local telephone markets came to an end in 1984, in
the aftermath of an antitrust suit brought by the Department of Justice,
which alleged that the company was engaging in anticompetitive behavior to
the detriment of new competitors in the long distance and telephone
equipment markets.7 Under a consent decree, AT&T was required to divest its
ownership of the 22 Bell Operating Companies. These 22 companies were
initially reorganized into seven Regional Bell Operating
Companies--Ameritech Corporation, Bell Atlantic Corporation, BellSouth
Corporation, NYNEX Corporation, Pacific Telesis, Southwestern Bell
Corporation, and US WEST, Inc. By 1999, these seven companies had merged
into four: Bell Atlantic, BellSouth, SBC Communications, and US WEST. 8
Approximately 1,300 independent telephone companies continue to operate,
ranging from small ones with only a few hundred access lines to the largest,
Sprint/United, with millions of access lines. Along with the mergers of
whole companies, smaller realignments are taking place, including the sale
of access lines by one company to another. In general, the major ILECs are
selling access lines to smaller companies. A telephone company that plans to
sell access lines must obtain approval from the appropriate state utility
commission. Additionally, the telephone company must get approval from FCC
to discontinue service.9 Finally, in most cases, an ILEC must apply to FCC
for a waiver when the company plans to sell access lines that will change
the geographic service area of its operations.10

The digital age is bringing new business opportunities to local telephone
companies as the volume of data traffic carried over the public telephone
network increases. The rapid growth of the Internet and of electronic
commerce is driving the demand for broadband access that provides a
continuous connection to the Internet, coupled with the capability of both
receiving and transmitting data at high speeds. To capitalize on the demand
for broadband service, telephone companies are taking steps to exploit the
unused carrying capacity of the copper wiring with DSL technology that
connects homes to the telephone companies' switching centers, so that
broadband signals can be carried along this "last mile" from the switching
center into homes.

Maintaining the quality of telephone service amidst the changes in the
telecommunications marketplace is increasingly important. Telephone lines
provide critical communications connections between electronic devices that
have become integral to how consumers, businesses, and government send and
receive information. As competition develops and the telecommunications
industry becomes a network of networks, it will be increasingly challenging
to maintain seamless, high-quality service. State utility commissions
continue to play a major role in overseeing the quality of local telephone
service within their states. Since the rules on service quality differ from
state to state, telephone companies must comply with the specific service
quality rules for the states in which they operate. At the federal level,
FCC monitors the quality of service as part of its regulatory
responsibilities. While FCC has not established service quality standards
for local telephone companies, it evaluates telephone companies' performance
on the basis of industry standards and an analysis of trends in service
quality data, as reported to FCC by the companies themselves. These data
include companies' customer complaints and surveys of customer
dissatisfaction.

State utility commission staff participating in our nationwide survey
estimate that about 68 percent of the nearly 832,000 access lines sold by
the major ILECs from January 1996 through April 2000 were in rural areas.
More than half of these approximately 562,000 rural access lines were sold
during the first 4 months of 2000. The survey also found that while sales of
access lines by the major ILECs declined steadily from 1997 through 1999,
they surged during the first 4 months of 2000. Although the number of rural
lines sold from January 1996 through April 2000 represented only 2 percent
of the total number of rural access lines that these ILECs owned in 1999,
the upswing in rural line sales appears to be continuing. Two major ILECs
have plans pending with state utility commissions to sell more than 870,000
additional rural lines.

From January 1996 through April 2000, in 31 separate sales, the major ILECs
sold 831,424 access lines in 18 different states; 68 percent of these lines,
or 561,982, were concentrated in rural areas.11 The number of all access
lines per sale ranged from 94 to 242,110. Most of the individual sales
involved relatively small numbers of access lines: an average 2,726 lines
per sale, with 19 out of 31 sales involving 5,000 or fewer lines. As
indicated in figure 1, sales generally involved access lines in the central
and mountain regions of the country.

Source: GAO's survey of state utility commissions .

Utility commission staff in 15 of the 18 states where sales occurred
reported in our survey that all of the lines sold in their states were in
rural areas. (See table 1.) The four states with the greatest sales of
access lines were Arkansas, Illinois, Missouri, and Oklahoma. The number of
lines sold in these states accounted for 73 percent of all lines sold and an
estimated 61 percent of all rural lines sold.

                                   Estimated percent of
                   Total access
 States with accesslines sold      access lines          Estimated
 line sales        in rural and                          rural access
                   nonrural areas  sold in rural         lines sold
                                   areas
 Arkansas          242,110         62%                   150,108
 Arizona           1,250           100%                  1,250
 Colorado          94              100%                  94
 Idaho             14,545          100%                  14,545
 Iowa              23,573          100%                  23,573
 Illinois          132,000         0%                    0
 Kansas            3,015           100%                  3,015
 Michigan          11,200          100%                  11,200
 Minnesota         27,743          100%                  27,743
 Missouri          120,506         100%                  120,506
 Nebraska          12,497          100%                  12,497
 North Dakota      17,000          100%                  17,000
 Oklahoma          116,066         61%                   70,626
 South Dakota      4,919           100%                  4,919
 Texas             13,043          100%                  13,043
 Utah              5,000           100%                  5,000
 Washington        1,863           100%                  1,863
 Wisconsin         85,000          100%                  85,000
 Total             831,424         68%                   561,982

Source: GAO's survey of state utility commissions. Rural lines sold were
estimated from state utility commission staff estimates of the percent of
access lines sold in rural areas.

As shown in figure 2, the number of access lines sold annually by the major
ILECs decreased from 1997 through 1999, with only one sale (for 94 lines)
occurring during 1999. However, the picture changes dramatically in 2000.
The number of access lines sold from January through April 2000 exceeds the
total number of lines sold from 1996 through 1999. Similarly, the major
ILECs sold more lines in rural areas in the first 4 months of 2000 than the
total number of rural lines they sold from 1996 through 1999. According to
GTE and US WEST officials, their companies made business decisions to sell
access lines at several times in the past. The fluctuations in annual sales
between 1996 and 2000, according to these officials, is attributable to the
time required to obtain state and federal regulatory approvals to effect the
transfer of the lines to the purchasers. For example, sales for 1996 through
1999 resulted from decisions to sell access lines in 1994, while sales in
2000 resulted from 1999 decisions to sell additional lines. FCC disagrees
with the notion that the delays associated with state and federal approvals
are responsible for the pattern of sales. According to FCC, the majority of
the delay between a strategic decision to sell lines and final approval is
the result of negotiations between the ILEC and potential purchaser. FCC
estimates that federal approval generally takes no more than 2 months.

a All sales in 1996 and 1998 were rural.

b One sale of less than 100 lines.

C Includes sales from January-April 2000.

Source: GAO's survey of state utility commissions. Rural sales were
estimated by state utility commission officials.

Figure 3 shows the total sales in rural and nonrural areas from January 1996
through April 2000 for the four ILECs.

Note: Two percent of Sprint/United sales were in rural areas.

Source: GAO's survey of state utility commissions. Rural sales were
estimated by state utility commission staff.

As indicated in the figure, all of the access lines sold by US WEST and
Ameritech were in rural areas. In addition, nearly three-quarters of the
lines sold by GTE and 2 percent of the lines sold by Sprint/United were in
rural areas. Figure 4 shows, by major ILEC, the estimate of rural access
lines sold from January 1996 through April 2000. Of the estimated rural
lines sold (561,982), GTE and US WEST sold 84 percent (473,967) and
accounted for 27 of the 31 sales transactions. Sprint/United conducted three
sales and Ameritech conducted one sale. Our estimates of the remaining rural
sales include 3,015 lines sold by Sprint/United in Kansas and 85,000 lines
sold by Ameritech in Wisconsin.

Note: Percents do not add due to rounding.

Source: GAO's survey of state utility commissions. Rural sales were
estimated by state utility commission staff.

The increase in sales of access lines appears to be continuing. As of April
2000, US WEST and GTE had notified state utility commissions that they were
planning 30 additional sales involving over 1 million access lines,
primarily in rural areas. If approved, these sales would transfer more
access lines than were sold from January 1996 through April 2000. We have
information on 27 pending sales of rural and nonrural access lines; one
state commission could not provide the total number of lines to be sold in
the pending sale; and two state commissions could not distinguish between
rural and nonrural access lines.12 Figure 5 indicates that, as with sales
approved by state utility commissions, most of the states with pending
access line sales are in the central and mountain regions of the country.

Note: Sales are pending in Arizona, Montana, and New Mexico; however, state
utility commissions were unable to provide the total number of lines to be
sold.

Source: GAO's survey of state utility commissions.

More specifically, in the 27 pending sales for which complete information
was available, US WEST and GTE plan to sell a total of 901,379 access lines.
An estimated 97 percent of these lines (871,818 lines) are in rural areas,
according to our survey of state utility commissions. In 24 of these 27
sales, the commission staff reported that US WEST and GTE plan to sell
access lines exclusively in rural areas. Table 2 provides information on the
total number of rural access lines planned for sale, by state. The number of
lines per pending sale for the 27 sales varies widely, ranging from 169
lines for one sale in Utah to 313,800 lines for a sale in Texas. In the
other three pending sales for which state utility commission staff provided
complete information in our survey, US WEST and GTE plan to sell access
lines in both rural areas and urban areas. Among these sales, for example,
GTE plans to sell 128,000 lines in Minnesota, 78 percent of which are
estimated to be in rural areas, while US WEST has two sales planned in
Wyoming, one involving 2,336 lines (50 percent estimated to be in rural
areas) and the other involving 4,664 lines (95 percent estimated to be in
rural areas).

 States with                         Estimated percent  Estimated rural
 pending sales of   Total access     of rural access    access lines to be
 rural access       lines to be sold lines in pending   sold in pending
 linesa             in pending sales sales              sales
 Alaska             23,796           100%               23,796
 California         50,700           100%               50,700
 Colorado           36,000           100%               36,000
 Idaho              45,000           100%               45,000
 Iowa               50,000           100%               50,000
 Minnesota          128,000          78%                99,840
 Nebraska           74,953           100%               74,953
 South Dakota       2,360            100%               2,360
 Texas              313,800          100%               313,800
 Utah               34,622           100%               34,622
 Washington         10,148           100%               10,148
 Wisconsin          125,000          100%               125,000
 Wyoming            7,000            80%                5,599
 Total              901,379          97%                871,818

a Pending sales by state are as follows: Colorado, Idaho, Iowa, Minnesota,
South Dakota, Texas, and Washington each have one; California, Nebraska,
Wisconsin, and Wyoming each have two; Alaska has five; and Utah has seven.

Source: GAO's survey of state utility commissions. Rural lines sold were
estimated from state utility commission staff estimates of the percent of
access lines sold in rural areas.

In addition to involving greater numbers of access lines in total, the
individual sales that US WEST and GTE have pending with state utility
commissions are, on average, larger than the sales that have been approved
by the state utility commissions. Specifically, the average number of lines
to be sold in the pending sales is 11,500, compared with an average of 2,726
lines sold in sales that have been approved by the state utility
commissions. Moreover, while 18 out of 29 of the pending sales (for which we
have complete information on total lines) are for more than 5,000 lines,
about the same number of past sales were for 5,000 or fewer lines. Only two
states (South Dakota and Wyoming) have pending sales of under 10,000 lines,
while seven states (California, Iowa, Minnesota, Nebraska, New Mexico,
Wisconsin, and Texas) have sales pending for 50,000 lines or more.

Substantially Since Adaptation for Internet Access

DSL technology was initially developed in the late 1980s and tested in the
early 1990s as a means for providing video services over the telephone
network. In the mid-1990s, as the Internet began to surge in popularity,
technical trials were conducted by several telephone companies to test the
asymmetric form of DSL (ADSL) to provide high-speed Internet access.
Although the commercial deployment of ADSL technology did not begin for
nearly 10 years after its development, telephone companies' deployment of
ADSL for residential high-speed Internet access has grown substantially
since late 1997 when it was first deployed. According to a number of
communications industry officials and some industry experts, ILECs did not
deploy ADSL sooner because of concern that the technology could harm
existing high-speed telephone services. ADSL deployment by ILECs increased
in recent years, we were told, in response to ADSL deployment rates of CLECs
and the cable industry's deployment of cable modem Internet service.
Representatives of several ILECs contend that ADSL was not deployed sooner
because the trials of the technology for video on-demand service were
unsuccessful, the technology had technical limitations, and federal
regulations were issued for DSL service.

Lines

DSL is the generic name for a communications technology that supports the
transmission of high-speed broadband services over telephone companies'
existing local loops--the twisted pair of copper wires connected from
virtually every home and business in the nation to the public switched
telephone network. One version of the technology, ADSL, provides faster
speeds for downloads than uploads and has become the most widely deployed
form of DSL technology by the nation's telephone companies for the provision
of high-speed Internet access. This technology facilitates the transmission
of data signals over the high-frequency portion of the loop in their
original form, bypassing the public network, and routing the signals between
a user's computer and the Internet. Without DSL service, data signals must
be converted by a modem for transmission over copper loops and reconverted
back to their original form at their destination point. Because different
portions of copper loops' bandwidth are engaged in transmitting voice and
data signals, both can be transmitted simultaneously with DSL technology,
thereby enabling a DSL customer to talk on the telephone and use the
Internet at the same time.

for Internet Access

Efforts to maximize the existing copper loop infrastructure of the telephone
network for the transmission of video and other services requiring greater
bandwidth began in the late 1980s. Bell Communications Research
(Bellcore),13 the former research and engineering consortium of the Regional
Bell Operating Companies, is largely credited with the initial research on
DSL. Overcoming a general belief that the telephone companies' local copper
loops had limited capacity, Bellcore researchers demonstrated that the
bandwidth available on the loops was not fully utilized for voice services
and that the transmission capacity was significantly higher than estimated
earlier. Because voice signals only utilize a small portion at the lowest
frequency of the available bandwidth on local loops, DSL technology was
developed to exploit the unused high-frequency portion of copper loops to
transport data signals at high speeds. Figure 6 shows the timeline of DSL
development.

Research on DSL continued into the early 1990s to improve the technology and
its ability to support the delivery of broadband services to telephone
customers. Several techniques were developed by private sector and academic
researchers to code, or modulate, data signals that are transmitted over
local loops using DSL technology in order to provide an "asymmetrical"
capability--that is, a higher speed for downloading data using greater
bandwidth and slower speeds using less bandwidth for uploading
data--considered key to delivering video. A division within the DSL
developer community over the competing modulation techniques resulted in the
formation of the ADSL Forum in 1994, which brought the DSL industry together
to support further research, development, and deployment of DSL technology.
The most widely deployed form of DSL technology today, ADSL was considered
practical for video services and later for Internet access because it mimics
typical customer usage patterns of substantial download and minimum upload
activities.

In October 1992, Bell Atlantic announced plans to test a video on-demand
service using ADSL-equipped telephone lines to transmit video by customers'
request. When the 2-year trial was launched in April 1993 with the
participation of 300 employees, Bell Atlantic became the first known company
in the world to deploy ADSL technology outside a laboratory. In a second
phase, begun in May 1995, Bell Atlantic tested video on-demand over ADSL
technology under field conditions with actual customers. At the conclusion
of this commercial trial, Bell Atlantic announced plans to deploy ADSL for
on-demand broadband services in selected markets beginning in 1997.14

By the mid-1990s, the popularity of the Internet surged because the
graphical nature of the World Wide Web greatly improved public access to the
Internet. In addition, alternative methods for Internet access--such as
cable modem service--became available to consumers, and the ILECs began to
face competition for both conventional local telephone and DSL services, in
part because of the enactment of the Telecommunications Act of 1996. Upon
realizing at this time that new media services would become more widely
available through the Internet over a personal computer than over television
sets, ILECs' efforts to bring ADSL technology to commercialization were
redirected to capitalize on the growing demand for Internet access and
services based on the World Wide Web. ADSL field trials conducted by other
telecommunications companies in the mid-1990s were designed to test the
technology for providing broadband Internet access. For example, GTE began
an Internet access trial using 30 ADSL-equipped lines in Irving, Texas, in
February 1996, and conducted a second trial in partnership with Microsoft in
Redmond, Washington, 2 months later. Other known ADSL trials for Internet
access were conducted in 1996 by Ameritech, NYNEX, Pacific Telesis, SBC
Communications, and US WEST.

US WEST in Phoenix, Arizona, made the first known commercial offering of
ADSL service for Internet access in late 1997. Ameritech, GTE, and SBC soon
followed with commercial deployments of ADSL service in late 1997 and 1998.
As CLECs began to gain access to incumbent carriers' networks and
facilities, as permitted by the Telecommunications Act of 1996, DSL service
also began to be rolled out to CLECs' customers. For example, Covad
Communications launched ADSL service in December 1997 in the San Francisco
Bay area; ICG Communications launched ADSL service to customers in areas of
California, Colorado, Ohio, and parts of the southeastern United States in
March 1998. Market research data show that by the end of 1998, 39,000 DSL
lines were deployed across the country. One year later, at the end of 1999,
the number of DSL lines in service was estimated at 504,110. The most recent
data available from industry experts indicate that at the end of the second
quarter of 2000, 1,204,478 DSL lines were in service. On the basis of recent
trends, industry experts estimate that DSL deployment will reach over 2
million in-service lines by the end of 2000.

Although DSL service has held the promise for several years of transforming
the telephone companies' copper loops into high-speed connections delivering
broadband services, there are concerns that the technology has not been
rolled out by the Regional Bell Operating Companies and other ILECs as
rapidly as possible. For example, the 1999 Economic Report of the President
noted that, despite the availability of DSL technology since the 1980s,
local telephone companies have only recently begun to offer DSL service to
business and residential customers.

According to a number of communications industry officials and some industry
experts we spoke with, the recent rapid deployment of DSL by the ILECs has
occurred primarily to compete for high-speed Internet access with CLECs,
which have aggressively rolled out DSL, and with cable companies deploying
broadband cable modem service. Although DSL was first conceived as a means
to enter the video market and compete with cable companies, the ILECs'
interest in the technology diminished until they feared that competitors
would use the technology to force their way into the local telephone market,
according to some industry officials and experts. In addition, some industry
analysts we spoke with indicated that the ILECs began to understand they had
no choice but to test-market and deploy DSL more quickly or risk losing
market share of the broadband Internet services market to cable companies.

Numerous reasons were offered by some communications industry officials and
experts whom we spoke with for the ILECs' initial slow deployment of DSL
service. Most frequently cited was a concern among the ILECs that DSL might
negatively affect the revenues generated by other high-speed services
offered by these companies. In addition to the effects on other services, we
were told that it takes a long time for new technology to be deployed by the
telephone industry. One industry analyst told us that telephone companies
are more risk-averse than other market participants, such as the cable
companies, and are less likely to roll out an unproven technology.

By contrast, officials of several ILECs and others told us that DSL was not
rolled out sooner largely because the original application for which it was
intended--video on-demand--was not successful in field trials. We were also
told that (1) the standards for DSL were not promulgated quickly enough, (2)
public demand for broadband services did not arise until recently, and (3)
there were and continue to be many technical limitations of DSL technology.
These limitations include the following: DSL service can only be provided to
customers who reside at a distance of no greater than 18,000 feet from a
telephone company's central office;15 the customers' telephone lines must be
in good enough physical condition to support the service; and the telephone
companies have had to address the issue of the compatibility of DSL
technology used on copper loops with fiber optic cable deployed from central
offices to remote facilities placed in neighborhoods. Finally, we were told
that the regulation of DSL technology under provisions of the 1996
Telecommunications Act serves as a disincentive to its more rapid deployment
by the ILECs.

We reviewed two key indicators that raise concerns about the quality of
telephone service. One of the indicators is customer complaints filed with
state and federal regulators. Following a decline in the number of
complaints per 1,000 access lines from 1996 to 1997, we found a steady
increase in complaint levels between 1997 and 1999. The other indicator is
telephone companies' own survey data on customer dissatisfaction with the
quality of a variety of telephone services. We found that the changes in
customer dissatisfaction levels from 1996 to 1999 varied considerably from
company to company, depending on type of customer (residential, small
business, and large business) and the type of service. Although no overall
trend is evident for the entire 1996-99 period, the data do indicate that
customers of most major ILECs were more dissatisfied with their telephone
service in 1999 than they were in 1998.

Increasing

The telephone industry has developed and widely uses service quality
indicators to track the quality of key telephone services. The telephone
companies are required to report data on these service quality indicators to
FCC, which maintains the information in its Automated Reporting Management
Information System (ARMIS) 16 and produces an annual report on telephone
service quality.17 The ARMIS service quality data are self-reported by the
major ILECs and are not verified by FCC.

One of the key indicators tracked in the ARMIS database is the number of
customer complaints filed with state utility commissions and FCC about
service problems. These customer complaints concern service quality issues
only and exclude complaints about billing, operator service providers, and
information services provided by other companies (such as 900 or 976
services used to hear sports scores and stock quotes). We calculated the
number of complaints per 1,000 access lines for eight of the major ILECs.
Because some major ILECs are larger than others, we calculated the number of
complaints per 1,000 lines to provide a comparable measure across the
companies. We excluded NYNEX from our analysis because of a change in the
company's data reporting methodology, which would have caused inconsistent
data to be used for comparison. FCC officials agreed that NYNEX data should
not be included in our analysis of complaint data.

As indicated in figure 7, the level of customer complaints per 1,000 access
lines filed with state and federal regulators against the major ILECs has
increased overall since 1996. Following a modest decrease from 1996 to 1997,
the complaint level increased to a point significantly higher in 1999 than
in 1996.

Note: These data include Ameritech, Bell Atlantic, BellSouth, US WEST,
Sprint/United, Southwestern Bell, Pacific Telesis, and GTE. They exclude
NYNEX, which changed in how it reports data during this period.

Source: GAO's analysis of FCC's data.

Figure 8 provides a breakdown of the overall customer complaint levels per
1,000 access lines for each of the eight major ILECs. The overall increase
between 1996 and 1999 is attributable to higher complaint levels for five of
the eight major ILECs included in our analysis for this service quality
indicator: Ameritech, Bell Atlantic, BellSouth, US WEST, and
Sprint/United.18 Two companies' complaint levels remained relatively
unchanged during this period--Southwestern Bell and Pacific Telesis, while
GTE's complaint levels declined. Concerning the relative number of
complaints per 1,000 access lines across the major ILECs in 1999, as
reported by the companies themselves, Southwestern Bell and Pacific Telesis
are the lowest, while US WEST is the highest.19

Source: GAO's analysis of FCC's data.

For the ILECs we examined, we found no difference in the level of complaints
for both urban and rural customers. That is to say, Ameritech, Bell
Atlantic, BellSouth, Pacific Telesis, US WEST, and Sprint/United had more
complaints per 1,000 access lines among both urban and rural customers in
1999 than in 1996; Southwestern Bell's complaint levels remained relatively
unchanged among both urban and rural customers between 1996 and 1999; and
GTE's complaint levels declined among both urban and rural customers between
1996 and 1999.

Although we did not find differences between urban and rural complaint
levels, we did find that residential customers appear to be experiencing a
higher level of service problems than business customers. From 1996 through
1999, all of the major ILECs had more complaints per 1,000 access lines
filed against them by residential customers than by business customers.20
The complaint levels can be the result of several factors, including
customers' distance from the central office. Figure 9 shows the level of
complaints for business and residential customers in 1999.

Source: GAO's analysis of FCC's data.

Changes in the number of residential and business complaints from 1996
through 1999 were generally similar to changes seen in each company's total
level of complaints. Namely, Ameritech, Bell Atlantic, BellSouth, US WEST,
and Sprint/United had more residential and business customer complaints per
1,000 access lines in 1999 than in 1996. Southwestern Bell's residential and
business customer complaints per 1,000 lines stayed about the same while
GTE's declined. The only anomaly was Pacific Telesis; its level of
complaints from business customers was about the same for 1996 through 1999,
while complaints from residential customers increased. FCC officials told us
they are concerned about the increasing level of complaints, especially
since most of the customers are residential.

Customer, and Type of Service

A second key indicator tracked by FCC are survey data on customer
dissatisfaction. Most major ILECs design and conduct annual surveys to
determine how dissatisfied their customers are with various aspects of their
service and then report the results of these surveys to FCC. In FCC's annual
report on service quality, the percentage of dissatisfied customers is
reported by company for three types of customers--residential, small
business, and large business--and for three types of
services--installations, repairs, and business office services.21 As with
other ARMIS service quality data, the customer satisfaction data are
self-reported by the telephone companies and not verified by FCC.

In contrast to customer complaints, the ARMIS data for 1996 to 1999 show no
consistent trend in the level of customer dissatisfaction across the major
ILECs, the three types of customers, or the three types of services we
examined. Rather, there is much variation in the levels of dissatisfaction,
depending on the company, the type of customer, and the type of service. For
example, the residential customers of Ameritech, BellSouth, and Pacific
Telesis were more dissatisfied with all three types of
services--installation, repair, and business office--in 1999 than in 1996.
In contrast, Bell Atlantic and NYNEX residential customers were less
dissatisfied with these three types of services in 1999 than in 1996. There
was no consistent pattern of change for the residential customers of the
remaining three companies. The patterns for small business and large
business customers were even more varied. However, if we narrow the time
frame and compare 1999 data with 1998 data, we find that customers for most
ILECs generally expressed more dissatisfaction with all types of services.
FCC officials have told us they are concerned about this recent general
increase in dissatisfaction. Appendix II provides detailed information on
customer dissatisfaction levels for 1996 through 1999 by company, type of
customer, and type of service.

We provided a draft of this report to the Federal Communications Commission
for review and comment and subsequently spoke with the Chief of the FCC's
Accounting Safeguards Division. The agency concurred with our findings and
provided several points of clarification, which we incorporated into our
final report.

We are sending copies of this report to interested congressional committees;
the Chairman, Commissioners, and Managing Director, FCC; the Director, OMB;
and other interested parties. We will also make copies available to others
upon request.

If you or your staff have any questions about this report, please call me on
(202) 512-7631. Key contributors to this report are listed in appendix III.

Sincerely yours,

Stanley J. Czerwinski
Associate Director, Housing, Community Development,
and Telecommunications Issues

Scope and Methodology

We reviewed Federal Communications Commission (FCC) data to identify cases
in which major incumbent local exchange carriers, known as ILECs, had sought
the Commission's approval for changes in the geographical boundaries of
their operations in connection with sales of access lines since 1996. We
also mailed surveys to staff at the state utility commissions in all 50
states and the District of Columbia. The surveys included information on the
sales of access lines obtained from FCC and asked the state utility
commission staff to verify this information. Thus, respondents provided the
number of access lines sold in each sale. In reporting the average number of
lines sold in sales that have already occurred and in pending sales, we used
the median to represent the average. The median is the midpoint in a range
of numbers. The survey also requested information on any other sales or
pending sales of access lines. Respondents estimated the percentage of
access lines that were in rural areas--areas outside metropolitan
statistical areas--for (1) actual sales and (2) pending sales. We received
survey responses from all 51 state utility commissions.

To describe the development of digital subscriber line (DSL) technology and
the basis for variations in its rate of deployment, we reviewed FCC
publications and public sources for documentation and information on DSL
technology. In addition, we talked with industry officials--including
representatives of telephone companies (e.g., Bell Atlantic, GTE, SBC, and
US WEST); cable companies; and other communications companies--and industry
experts to identify trends in how DSL technology is being deployed.

To identify service quality issues associated with the large incumbent local
telephone companies, we interviewed FCC staff and reviewed FCC and public
reports on service quality. In addition, we analyzed service quality
information in FCC's Automated Reporting Management Information System
(ARMIS) database. This information is supplied to FCC by the large telephone
companies.22 Because FCC does not audit the service quality data, these data
may contain errors that cannot be determined at this time. Also, carriers
periodically revise submitted data as problems are discovered and,
therefore, the data used for this report may not contain the latest
available data on file. Furthermore, caution is needed when analyzing some
of the service quality data indicators because different companies may view
what is included in a category differently. For example, services that one
company considers installation, repair, or business office services may be
viewed differently by another company. Finally, because performance within
any single category may vary over time, using only a single indicator
category may be misleading. We also reviewed other service quality data
supplied to FCC by the large telephone companies as required by law or by
merger agreements.

We performed our review from March through August 2000 in accordance with
generally accepted government auditing standards.

Trends for Percent of Customers Dissatisfied, 1996 and 1999

Reporting ILECs are required to provide data to FCC on the percent of
residential, small business, and large business customers dissatisfied with
installation, repair, and business office services and procedures.

Tables 3 through 11 show the eight major ILEC's performance for 1996 through
1999 (the most recent data) for each type of customer and types of service.
The tables provide the underlying percentage data used to create the figures
that follow them. As the tables and figures indicate, companies varied
considerably in the changes in level of dissatisfaction between 1996 and
1999 in each of the categories. We highlight instances where individual
ILECs show a clear trend of increasing levels of customer dissatisfaction
over the period.

Table 3 and figure 10 provide information on residential customer
dissatisfaction with installation services over the 1996 to 1999 period.
Ameritech, BellSouth, and Pacific Telesis residential customers were
increasingly dissatisfied during this period.

 Company
                   1996  1997  1998  1999

 Ameritech         3.5   5.4   7.6   7.7
 Bell Atlantic     8.5   3.1   3.9   5.7
 BellSouth         5.2   5.7   6.8   9.2
 GTE               7.5   7.8   7.4   7.4
 NYNEX             14.1  11.5  4.4   5.1
 Pacific Telesis   3.1   4.2   7.2   10.8
 Southwestern Bell 5.8   5.5   5.0   5.7
 US WEST           9.5   4.9   4.9   7.3

Source: GAO's analysis of FCC's data.

Services, 1996-99

Source: GAO's analysis of FCC's data.

Table 4 and figure 11 illustrate the trend in residential customer
dissatisfaction with repair services for 1996 through 1999. Ameritech,
BellSouth, Pacific Telesis, and US WEST customers became more dissatisfied
during this period.

 Company
                   1996  1997  1998  1999

 Ameritech         9.1   10.4  12.4  15.4
 Bell Atlantic     21.1  8.3   12.3  15.8
 BellSouth         8.7   8.5   10.2  15.1
 GTE               12.8  11.8  11.0  11.6
 NYNEX             27.3  21.4  12.7  13.9
 Pacific Telesis   7.4   10.6  15.6  15.8
 Southwestern Bell 8.4   8.0   7.6   7.9
 US WEST           10.6  7.1   8.3   13.9

Source: GAO's analysis of FCC's data.

1996-99

Source: GAO's analysis of FCC's data.

Table 5 and figure 12 provide information on residential customers'
dissatisfaction with business office services. Ameritech, BellSouth, and
Pacific Telesis residential customers generally became more dissatisfied
during 1996 through 1999.

 Company           1996  1997  1998  1999
 Ameritech         5.9   8.4   8.9   8.6
 Bell Atlantic     11.4  3.5   5.4   5.7
 BellSouth         5.2   6.1   7.6   8.4
 GTE               2.1   2.2   2.1   1.8
 NYNEX             18.9  14.0  6.8   7.4
 Pacific Telesis   2.1   2.7   6.8   9.6
 Southwestern Bell 7.1   6.6   6.3   6.5
 US WEST           2.2   2.1   2.2   2.9

Source: GAO's analysis of FCC's data.

Services, 1996-99

Source: GAO's analysis of FCC's data.

Table 6 and figure 13 illustrate small businesses' dissatisfaction with
installation services. With the exception of GTE, NYNEX, and Southwestern
Bell, all companies report generally increasing levels of dissatisfaction
for 1996 through 1999.

 Company           1996  1997  1998  1999
 Ameritech         8.9   10.3  10.9  11.4
 Bell Atlantic     6.5   7.8   7.1   8.6
 BellSouth         3.5   5.8   7.2   8.2
 GTE               14.2  14.0  13.1  12.5
 NYNEX             20.5  17.1  8.1   9.5
 Pacific Telesis   4.5   6.2   9.9   11.2
 Southwestern Bell 6.9   6.3   6.4   7.4
 US WEST           11.6  12.0  12.8  17.2

Source: GAO's analysis of FCC's data.

Services, 1996-99

Source: GAO's analysis of FCC's data.

Table 7 and figure 14 provide information on small business customers'
dissatisfaction with repair services. Ameritech, Bell Atlantic, BellSouth,
Pacific Telesis, and US WEST small business customers became more
dissatisfied between 1996 and 1999.

 Company
                   1996  1997  1998  1999

 Ameritech         11.8  11.9  11.9  14.1
 Bell Atlantic     9.5   10.3  10.5  13.0
 BellSouth         4.3   7.4   8.3   10.7
 GTE               13.9  13.8  12.5  12.0
 NYNEX             23.4  20.2  11.4  10.8
 Pacific Telesis   7.6   8.7   9.7   11.8
 Southwestern Bell 6.6   5.8   6.0   6.0
 US WEST           12.9  8.0   9.4   17.6

Source: GAO's analysis of FCC's data.

Services, 1996-99

Source: GAO's analysis of FCC's data.

Services

Table 8 and figure 15 illustrate the trend in small businesses'
dissatisfaction with business office services. With the exception of GTE,
NYNEX, and Southwestern Bell, all companies report generally increasing
levels of dissatisfaction for 1996 through 1999.

 Company           1996  1997  1998  1999
 Ameritech         6.3   8.5   9.6   14.4
 Bell Atlantic     5.9   6.2   9.5   9.9
 BellSouth         2.3   6.2   8.0   10.6
 GTE               4.6   5.6   4.8   3.5
 NYNEX             15.9  14.5  8.1   8.3
 Pacific Telesis   4.0   5.0   9.4   10.5
 Southwestern Bell 6.6   5.9   5.8   7.4
 US WEST           3.6   4.4   5.2   7.1

Source: GAO's analysis of FCC's data.

Office Services, 1996-99

Source: GAO's analysis of FCC's data.

Table 9 and figure 16 illustrate the trend in large business customers'
dissatisfaction with installation services for 1996 through 1999. Two
companies show an increase (BellSouth and Pacific Telesis). Ameritech data
for 1999 were not available.

 Company           1996  1997  1998  1999
 Ameritech         9.4   10.3  10.8  a
 Bell Atlantic     11.3  9.3   11.0  10.3
 BellSouth         5.0   4.5   3.8   6.1
 GTE               1.2   6.4   4.1   3.0
 NYNEX             23.4  16.9  7.9   7.2
 Pacific Telesis   7.4   7.8   8.3   17.1
 Southwestern Bell 11.2  11.9  6.3   7.4
 US WEST           23.0  18.0  14.0  19.7

a Ameritech has not submitted these data.

Source: GAO's analysis of FCC's data.

Services, 1996-99

Note: Ameritech data for 1999 were not available.

Source: GAO's analysis of FCC's data.

Table 10 and figure 17 illustrate the level of large business customers'
dissatisfaction with repair services. BellSouth, GTE, and Pacific Telesis
large business customers became more dissatisfied. Ameritech data for 1999
were not available.

 Company           1996  1997  1998  1999
 Ameritech         11.8  15.8  12.6  a
 Bell Atlantic     13.2  9.0   14.6  13.0
 BellSouth         5.7   5.6   5.4   6.7
 GTE               1.3   6.8   2.5   2.5
 NYNEX             30.1  20.2  13.3  10.0
 Pacific Telesis   7.9   9.6   9.6   19.5
 Southwestern Bell 8.0   8.1   8.0   8.1
 US WEST           22.0  16.0  16.0  22.2

a Ameritech has not submitted this data.

Source: GAO's analysis of FCC's data.

Services, 1996-99

Note: Ameritech data for 1999 were not available.

Source: GAO's analysis of FCC's data.

Services

Table 11 and figure 18 provide information on large business dissatisfaction
with business office services. Bell Atlantic, BellSouth, Pacific Telesis,
and US WEST large business customers became more dissatisfied with business
office services for 1996 through 1999.

 Company           1996  1997  1998  1999
 Ameritech         13.4  9.5   9.3   5.2
 Bell Atlantic     9.8   5.8   11.6  10.8
 BellSouth         3.5   4.2   4.3   6.5
 GTE               0.3   0.0   1.5   1.1
 NYNEX             12.5  18.2  8.2   7.6
 Pacific Telesis   2.7   7.1   7.7   15.1
 Southwestern Bell 13.8  15.5  5.3   5.6
 US WEST           9.0   16.0  18.0  18.1

Source: GAO's analysis of FCC's data.

Office Services, 1996-99

Source: GAO's analysis of FCC's data.

GAO Contacts and Staff Acknowledgements

Stanley J. Czerwinski (202) 512-7631
John Finedore (202) 512-7631

In addition to those named above, Dennis Amari, Michael Clements, Sally
Coburn, Fran Featherston, Donna Lucas, and Joan Mahagan made key
contributions to this report.

(385852)

Table 1: Estimated Access Lines Sold in Rural Areas,
January 1996-April 2000 11

Table 2: Estimated Percent of Rural Access Lines Involved in
Pending Sales 16

Table 3: Percent of Residential Customers Dissatisfied With
Installation Services, 1996-99 33

Table 4: Percent of Residential Customers Dissatisfied With
Repair Services,
1996-99 35

Table 5: Percent of Residential Customers Dissatisfied With
Business Office Services, 1996-99 37

Table 6: Percent of Small Business Customers Dissatisfied With Installation
Services, 1996-99 39

Table 7: Percent of Small Business Customers Dissatisfied
With Repair Services, 1996-99 41

Table 8: Percent of Small Business Customers Dissatisfied
With Business Office Services, 1996-99 43

Table 9: Percent of Large Business Customers Dissatisfied With Installation
Services, 1996-99 45

Table 10: Percent of Large Business Customers Dissatisfied
With Repair Services, 1996-99 47

Table 11: Percent of Large Business Customers Dissatisfied
With Business Office Services, 1996-99 49

Figure 1: States Where Major ILECs Sold Access Lines,
January 1996-April 2000 10

Figure 2: Access Lines Sold by Major ILECs in Rural and
Nonrural Areas January 1996--April 2000 12

Figure 3: Rural and Nonrural Access Lines Sold by Major
ILECs January 1996--April 2000 13

Figure 4: Estimated Rural Access Lines Sold by Major ILECs,
January 1996-April 2000 14

Figure 5: States With Pending Sales of Access Lines, as of
April 2000 15

Figure 6: Timeline of DSL Development Activities 19

Figure 7: Complaints per 1,000 Access Lines for Major ILECs,
1996-99 24

Figure 8: Total Customer Complaints Per 1,000 Lines, 1996-99 25

Figure 9: Business Versus Residential Customer Complaints, 1999 27

Figure 10: Percent of Residential Customers Dissatisfied With
Installation Services, 1996-99 34

Figure 11: Percent of Residential Customers Dissatisfied With
Repair Services, 1996-99 36

Figure 12: Percent of Residential Customers Dissatisfied With
Business Office Services, 1996-99 38

Figure 13: Percent of Small Business Customers Dissatisfied With
Installation Services, 1996-99 40

Figure 14: Percent of Small Business Customers Dissatisfied
With Repair Services, 1996-99 42

Figure 15: Percent of Small Business Customers Dissatisfied
With Business Office Services, 1996-99 44

Figure 16: Percent of Large Business Customers Dissatisfied With
Installation Services, 1996-99 46

Figure 17: Percent of Large Business Customers Dissatisfied
With Repair Services, 1996-99 48

Figure 18: Percent of Large Business Customers Dissatisfied
With Business Office Services, 1996-99 50
  

1. Sales of telephone facilities typically include the sales of access
lines, local switches, and trunks. The local switches connect access lines
for the duration of the telephone calls, and trunks connect one local switch
to another or to the long distance network. The size of a telephone facility
sale is expressed by the number of access lines served.

2. The general concept of a metropolitan statistical area is that of a core
area containing a large population nucleus, together with adjacent
communities having a high degree of economic and social integration with
that core. The current standards provide that each newly qualifying
metropolitan statistical area must include at least one city with 50,000 or
more inhabitants, or a Census Bureau-defined urbanized area (of at least
50,000 inhabitants) and a total metropolitan population of at least 100,000
(75,000 in New England).

3. Local telephone service includes calls that are made within a designated
geographic area or locality without paying long distance charges.

4. ILECs include the Regional Bells as well as many other independent local
telephone carriers that were providing local telephone service before the
1996 act was passed. We considered ILECs with more than 2 percent of the
total telephone access lines in the United States as "major."

5. We report sales in the year the state utility commission approved them.
For most sales, FCC must subsequently approve a waiver to change an ILEC's
geographic service area. FCC granted waivers for all sales by major ILECs
that required waivers and were approved by state utility commissions from
1996 through 1999.

6. Intrastate telephone services are regulated by state agencies, generally
called public utility commissions. In this report, we refer to these
agencies as state utility commissions.

7. By the early 1980s, AT&T had carried roughly 80 percent of the nation's
local telephone traffic through its 22 subsidiary Bell Operating Companies.
The remaining 20 percent of local telephone traffic (much of which was
concentrated in rural areas) was carried by a myriad of independent
telephone companies unaffiliated with AT&T. Because both the Bell Operating
Companies and the independent companies held franchises giving them the
right to serve geographically distinct areas that did not overlap, very few
consumers had a choice of providers for local telephone service.

8. In this report, we provide information on the original seven Regional
Bell Operating Companies, GTE, and Sprint/United, each of which owns more
than 2 percent of the access lines in the United States. In recent years,
SBC Communications, the parent of Southwestern Bell, has acquired Ameritech
and Pacific Telesis, along with Southern New England Telephone Company. Bell
Atlantic has acquired NYNEX. FCC approved two new mergers in June 2000. Bell
Atlantic and GTE are now called Verizon. US WEST and Qwest are now called
Qwest.

9. Section 214 of the Communications Act of 1934, as amended, 47 U.S.C. 214.

10. In 1984, FCC froze the geographic boundaries where ILECs provide
service, known as study areas. An ILEC must apply to FCC for a waiver when a
sale or purchase of access lines will change the study area boundary.

11. Because we gathered data from state utility commissions, sales listed in
this report were approved by the state utility commissions. However, sales
also require FCC approval. A few recent sales received FCC approval shortly
after April 2000 or are pending FCC approval.

12. The Arizona Corporation Commission was unable to provide the total
number of lines pending sale. In Montana and New Mexico, the state utility
commissions were able to provide the total number of lines to be sold but
were unable to determine how many of these lines are in rural areas.

13. In 1997, Bellcore was sold by the Regional Bell Operating Companies to
Science Applications International Corporation and was renamed Telcordia
Technologies.

14. In anticipation of the commercialization of video on-demand, three of
the Regional Bell Operating Companies--Bell Atlantic, NYNEX, and Pacific
Telesis--established a partnership known as "TELE-TV" in October 1994 to
provide a nationally branded package of entertainment, information, and
educational services. A similar company, known as "Americast," was formed by
Ameritech, BellSouth, Southwestern Bell, GTE, Southern New England Telephone
Company, and the Disney Company.

15. Although the distance limitation of DSL is acknowledged in FCC
documents, some industry officials and experts with whom we spoke disputed
the limitation.

16. The service quality indicators that the telephone companies report on
are switch outages and downtime, trunk blockages, installation and repair
intervals, customer complaints, and customer survey data.

17. Sprint/United is not required to submit an ARMIS report on customer
satisfaction.

18. We are reporting telephone company data as reported to FCC. Telephone
companies are continuing to report data to FCC in an unconsolidated form,
even though many companies are now merged.

19. To access the accuracy of the Pacific Telesis and Southwestern Bell
data, FCC contacted six state utility commissions in the territories that
these companies serve. Five of six reported a greater number of complaints
received about the companies than the companies reported in their ARMIS
filings for 1999.

20. The complaint results are consistent with the data that we found on
companies' trouble reports, which are also filed with FCC. Since there are
more residential consumers than business consumers, presumably there would
be more residential complaints. To normalize the complaint data for purposes
of comparing residential and business customer compliant levels, we
calculated the number of residential customer complaints per 1,000
residential access lines and the number of business customer complaints per
1,000 business access lines.

21. The categories for type of customer and type of service are defined and
interpreted by each reporting carrier because each carrier's survey can be
different. Thus, strict comparisons on the level of customer dissatisfaction
between carriers will not be precise.

22. These data are from telephone carriers that are required to file because
they are either a "price cap carrier" or because their annual revenues
exceed $114 million. A "price cap carrier" is a telephone company whose
prices are regulated or "capped."
*** End of document. ***