Fundamental Trends in Telephone Industry

The telephone industry is changing rapidly. This article outlines some of the major trends in telephone service. The most fundamental trend in the industry is that competition has begun to develop in local markets. In addition, new technology has permitted local telephone companies to offer competitive long-distance services.

Local Competition

One of the central goals of the 1996 Telecommunications Act is to encourage competition in the local telephone market. The local monopoly infrastructure must be opened to competitors for competition to grow. Fortunately, many states have already made progress in this regard. Some have even begun to liberalize prices on switched local telephone service, allowing long-distance carriers access to their lines to connect with customers. Although critics predicted that loosening or removing price controls would lead to rapid price increases, the data suggest otherwise. Consumers’ expenditures on telephone services have fallen consistently and continue to represent a relatively small portion of their overall expenses.


In general, telephone systems are continually undergoing significant improvements leading to the best landline phones services. This is reflected in the rapid extension of new types of facilities for toll circuits, changes in subscriber-station apparatus and increased use of signaling systems. In addition, telecommunications infrastructure can also include copper cables or fiber optics that allow users to connect to the Internet. This infrastructure will enable businesses to use mobile devices for communication, including cell phones and tablet computers.

Long Distance Competition

Long-distance telephone calls are a key focus of competition and consumer expenditures to some extent. The widespread view is that competition among the mass-market national long-distance carriers has substantially reduced average consumer calling rates. The emergence of new competitors is replacing the revenue-sharing arrangement that historically dominated long-distance and local service. These companies offer services that appeal to consumers, such as low prices and innovative features. The emergence of competition is accelerating because cable television providers have begun offering telephone and internet services in a single package. These “bundling” initiatives will encourage telecommunications competition and reduce consumer costs.

Access Charges

Until recently, many customers still received Plain Old Telephone Service (POTS). The latest FCC ruling has forced telcos to decommission these lines and migrate to next-generation technologies. Access charges allow local exchange networks to recover interconnect costs with other networks. These fees are charged on a per-minute basis for network-to-network traffic. Subscriber line charges are fixed monthly payment that helps support the cost of the local network. They may appear on your phone bill as “Federal access charge,” “access recovery charge,” or “customer or subscriber line charge.” You will also find a federal Universal Service Fund contribution on your bills.

International Telephone Traffic

Traditionally, international voice calls generated a significant share of the revenue for telecom operators. But today, the business is less about call volume and more about data and video services provided over cellular and satellite networks, which reduce reliance on wired telecom networks. Several factors contribute to this development, including increasing travel and tourism that welds Western Europe closer together. Also, technological innovation and falling prices have converged international calling rates with local and long-distance calls. Consequently, the growth rate of international telephone traffic has slowed.

Advanced Telecommunications and Broadband Services

Incumbent local exchange carriers (LECs) possess wire facilities that extend the last mile to many homes and businesses. These last-mile facilities include copper loops that can be used for basic local telephone service or to transport high-speed data communications and Internet access over new dial-up modems. The BLS conducts a consumer expenditure survey that includes telephone service. Household expenditures on telephone service have increased dramatically since 1980. Advanced telecommunications and broadband services require high-speed digital signals carrying multiple data streams simultaneously. These high-speed services can be delivered over conventional telephone lines, new cable television systems, and wireless technologies.

Universal Service Support

Since the break-up of AT&T in 1984, telephone service companies have been required to pay fees that fund their Universal Service commitments. These fees are passed on to consumers and are a significant component of consumer telephone charges. The Telecommunications Act of 1996 mandated that these Universal Service support mechanisms be broadened to include schools, libraries, and rural health care providers. The FCC oversees these programs, working with contributors, service providers and program beneficiaries to ensure that universal service funds are used appropriately.