Selected Information on Bypass of Local Telephone Companies

RCED-86-100: Published: Feb 14, 1986. Publicly Released: Feb 14, 1986.

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Pursuant to a congressional request, GAO provided information on residential and business customers' bypass of local telephone company services, focusing on: (1) two Federal Communications Commission (FCC) reports on bypass; (2) two nationwide bypass simulation studies; and (3) FCC and state bypass monitoring activities.

GAO noted that: (1) bypass occurs when customers use alternatives to local telephone company facilities to meet their telecommunications needs; and (2) there is widespread industry concern that local companies may need to increase rates for remaining customers to cover the revenue shortages that bypass creates. FCC has released two reports containing descriptive information on bypass that: (1) stated that bypass would continue to increase regardless of regulatory actions; (2) concluded that bypass would not affect the viability of local telephone companies; and (3) found that the amount of future bypass is likely to increase rates for other customers. GAO found that: (1) separate bypass simulation models developed by FCC and a telecommunications research firm led to widely differing estimates of potential losses; and (2) the variance occurred because the models used different assumptions about the extent and impact of bypass. In addition, GAO found that: (1) FCC has no formal bypass monitoring program but has attempted to monitor some aspects of bypass and plans to examine the issue in 1986; (2) monitoring that FCC performs to evaluate universal service indicates no significant decrease in residential telephone subscriptions; and (3) various states are carrying out bypass monitoring activities that include reporting on bypass by major customers, monitoring the number of lines disconnected, monitoring telephone company reporting on efforts to prevent bypass, and requiring providers of private bypass systems to register with state regulatory commissions.

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