LOCAL RATE INCREASE: OPPORTUNITY FOR ENHANCING PERCEIVED CUSTOMER BENEFITS

July 9-11, 2014

TSTCI Accounting and Customer Service Conference

Darla Parker

John Staurulakis, Inc

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OPPORTUNITY & RATE INCREASE

Netflix announced plans to raise prices by $1-2 per month, initially for new customers but eventually for everyone, “to acquire more content and deliver an even better streaming experience.” With the company set to surpass 50 million streaming subscribers by the second half of 2014, the price increase could add between $600 million and $1.2 billion to the company’s revenues within the next two years. Forbes April 2014

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MAGIC?

O

R

STRATE

GY

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In November 2011, in the USF/ICC Transformation Order, the Federal Communications Commission adopted a rate floor “to ensure that states are contributing to support and advance universal service and that consumers are not contributing to the Fund to support customers whose rates are below a reasonable level.”

FCC ESTABLISHES RATE FLOORS

2012: Residential rate floor established at $10.00

2013: Residential rate floor established at $14.00

2014: Residential Rate floor referred to in the USF/ICC Transformation Order estimated to be between $16 and $17. Floor includes state-regulated fees. Future floor to be determined by national average.

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FCC 2014 SURVEY R

ESULT

Survey based upon Fixed Stand Alone Voice Service Rates in urban areas from 2010 Census Blocks

$20.46 is th

e natio

nal aver

age loca

l end-

user ra

te

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SURVEY SAYS:

On March 20, 2014, the FCC’s Wireline Competition Bureau announced that the average local end-user residential rate plus state regulated fees of the surveyed incumbent LECs in urban areas is $20.46.

47 CFR 54.313(h) sets $20.46 as the rate floor effective July 1, 2014.

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SUPPORT LIMITATION

47 CFR Section 54.318(b) provides that where residential rates fall below the national local urban rate floor for standalone fixed voice service, high cost support would be reduced equal to the extent to which rates and state regulated fees fell below the urban rate.

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2014 RATE FLOOR

Dilemmas for carriers included what would be the local rate to achieve in order to avoid losing high cost support and would state commission approval be achieved in time to meet the July 1 deadline?

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RESIDENTIAL RATE FLOOR FOR 2014 - 2018

June 10, 2014, the FCC approved phase-in of the $20.46 rate floor to prevent rate shock. (FCC 7th Order)

• July 1, 2014, rate floor at $14.• Rate floor of $16, January 2, 2015 through June 30, 2016. • Rate floor of $18, July 1, 2016 through June 30, 2017, or

the 2016 national surveyed rate, whichever is lower. • Rate floor of $20, July 1, 2017 through June 30, 2018, or

the 2017 national surveyed rate, whichever is lower.

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RESIDENTIAL RATE FLOOR FOR 2014 – 2018 - RECAP

Link to FCC’s June 10th order:

http://transition.fcc.gov/Daily_Releases/Daily_Business/2014/db0626/FCC-14-54A1.pdf

Connect America Fund -

Report and Order, Declaratory Ruling, Order, Memorandum Opinion and Order, Seventh Order on Reconsideration, and Further Notice of Proposed Rulemaking

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THE NATIONAL AVERAGE RATE & THE FOUR-YEAR HORIZON

TIE RATE INCREASES TO BENEFITS DESIGNED TO RETAIN CUSTOMERS

• Increase the Customer’s Perceived Value•By adding to basic service, at no charge, a feature or

features that have perceived value and desirability.•By expanding the local calling scope where feasible.•By promoting unique services offered, such as

technology help desk, voice mail.•By reminding customers of your unlimited calling.

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TIE RATE INCREASES TO BENEFITS DESIGNED TO RETAIN CUSTOMERS (CONTINUED)

• Increase the Customer’s Perceived Value•Convenience as value. Companies have rolled out a

new service, such as on-line payment, new bundled service, or on-line service applications, accompanying a rate change.• Introduce “hidden” features in softswitches or software

which may now have value.

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TIE RATE INCREASES TO BENEFITS DESIGNED TO RETAIN CUSTOMERS (CONTINUED)

For the extra revenue, what will your customer get?

What will be delivered? Netflix promises better content and streaming.

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IMPLEMENTING THE RATE INCREASE

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• Timing• Informing your board and staff for understanding and

approval.• Informing customers.• Informing billing vendors in advance.•Working with your regulatory consultant to achieve

your best timing with regard to filing your minor rate change provisions under PUCT Substantive Rule 26.171 or as a partially deregulated cooperative under Rule 26.172.

Board Approval

PUCT Approval

Customer Accepting Perceived Benefits

Retained Customers and Retained Revenues

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IN SUM

Decide what will be the value you deliver in exchange for the rate increases ahead.

Target features based on customer service desires.

Where a company chooses not to raise rates to meet a benchmark, weigh future impacts from reduced high cost support.

Know that your residential rates in effect December 1, 2014 are the first to be measured with the $16 benchmark.

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QUESTIONS?

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THANK YOULET US KNOW HOW WE CAN ASSIST

Contact Info: Darla ParkerManagerJohn Staurulakis, Inc.9430 Research Blvd. II-200 Austin, Texas 78759dparker@jsitel.comTel: 512.338.0473, Fax: 512.346.0822

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