TELEPHONE PROGRAM

Upgrading Rural Telephone Service

More than four million subscribers were receiving service on REA-financed systems at the end of December 1979; of this total 76.7 percent was receiving one-party service, an increase from 73.8 percent one-party on December 31, 1978. The percent of total subscribers receiving eight- or more party service decreased from 3.9 percent to 2.5 percent. Continued progress is being made toward single party service in rural communities as shown below:

Commensurate with the need for better grades of rural service is greater use by rural people of toll calls to distant points. Increases in toll calling generally result from upgrading to one-party service. Another effect of upgrading has been the increased use of extension telephones and increased use of push-button telephones. These naturally increase telephone revenues. Average toll revenues per subscriber increased from $193.17 in 1978 to $224.25 in 1979, while the average local service revenue per subscriber increased from $134.75 to $143.96.

Financial Development of Telephone Borrowers - Total operating revenues reported by REA telephone borrowers in calendar year 1979 amounted to $1.5 billion compared with $1.3 billion in 1978. Toll service revenues amounted to 59 percent of this total or about $913 million. This increase is a continuation of the trend in the past few years which has been due to upgrading service to subscribers, increased ownership of toll lines by borrowers, and improved toll settlement contracts.

BORROWER NET WORTH

Borrowers net worth increased by $176 million during 1979, and now represents 24.7 percent of total assets. As can be seen in the following chart, the total net worth has increased by about 400 percent during the last 10 years.

Borrower Plant Investment - At the end of 1979. telephone plant-in-service totaled $6,084 million, an increase of $701 million for the year. This represents an investment per subscriber of $1,494, a 7.6 percent increase over the $1,389 per subscriber reported in 1978.

Management Assistance - Because of proposed legislative changes and FCC regulatory activities in the telecommunications industry, REA has spent a considerable amount of time on assisting borrowers in the efficient management of their operations.

FCC proceedings are regularly monitored to keep abreast of changes in regulations and comments are submitted on various dockets. The Branch Chief participates in meetings of the National Association of Regulatory Utility Commissioners to keep up with changes in the regulatory area.

A study of rural telephone rates was completed for inclusion in comments REA submitted to the FCC in Docket 78-72. The study revealed that local service rates would increase an average of 116% and toll rates would increase an average 36% for rural consumers if de-averaging of toll rates, deregulation of terminal equipment and elimination of toll support of local service goes into effect.

REA has also been involved in the comments which were submitted for the
Communications Act rewrite in the House and Senate.

The changes in the technical side of the telecommunications industry are coming at a more rapid pace. In order to keep up with these changes, REA held engineering symposia for borrower personnel and REA field personnel in four different locations in the United States.

Marketing Assistance More telephone companies are looking into digital Switching as they upgrade their service facilities and offerings. With digital switching, they can offer new services to their consumers such as call forwarding, call waiting, and abbreviated dialing. These services bring more revenue to the company and may eliminate or defer the need for rate increases. Marketing should play a bigger role in future telephone company operations. In order to assist the REA borrowers in starting a marketing program or suggesting new ideas for programs which they may already have, we have prepared material and conducted seminars at national meetings of telephone organizations such as NTCA and USITA in addition to working with individual companies who have requested our assistance in this area.

A Model Tariff, TOM Section 1510 was prepared and distributed to borrowers in order to assist them in revising their tariffs to include new services and equipment their companies are now, or will soon be providing.

Reviews of borrowers' operations are conducted on an ongoing basis to assure that REA procedures are being followed and the loans are secure.

Presentations were prepared for the annual meeting of the USITA on energy conservation, regulatory and legislative push for change, small company marketing, quality of service, and usage sensitive pricing.

AT&T is initiating new services which will affect REA telephone borrowers. REA has been researching and meeting with officials of AT&T in order to make the borrowers aware of these new services. Included among these are joint ownership of toll facilities, credit card calling, third number billing and collect calls.

As a means of improving loan processing in the telephone program, REA's Loan Management and Marketing Branch is involved in planning for the

computerization of the procedures. Descriptions and step-by-step outlines of the loan process are being developed. The Agency intends to identify the most likely areas for computerization prior to the systems analysis, resulting in time and money savings.

Telecommunications Engineering and Standards - Telephone industry issues have a significant impact on existing operation as well as future planning of rural telephone companies. Competition, with its impact on toll revenues, is just one of the many issues on the minds of telephone system managers.

Technological developments in all phases of telecommunications continue to accelerate and are providing managers with options and opportunities not only to improve their revenues but also to provide rural subscribers with a variety of innovative services not generally available or not economically feasible in the past. In our work we are continually searching for better methods of improving service to rural subscribers or improving existing methods at a minimum of cost.

Some of the more important activities in the engineering and construction areas that are currently underway in REA include:

The use of data transmission systems over the existing telephone network without modification to the cable and subscriber loop plant to make possible a variety of new services. The new services could include electric load management, gas, water and electric meter reading, subscriber data service, including such services as marketing, weather information and banking, telephone line testing, alarm services, etc. These services can be provided when the subscriber loop plant is not in use for regular telephone service, which is much of the total time in a 24-hour period.

The evolution and current design trends utilizing digital remote wire centers, including class 5 switches, remote switching units, line concentrators, and very small class 5 digital switches. These wire centers, now being installed at a rate of two or more per week in REA borrower systems, offer an opportunity for economically providing a variety of custom calling features for rural subscribers. Where a borrower proposes to replace an existing central office with digital switching a study is required covering the economy of installing digital equipment over additions to the existing electromechanical switch.

New developments in cable and outside plant accessory item designs.
Since cable plant is probably the most expensive component in a rural
system design much effort is expended to improve its performance. A
new REA specification for coaxial cable has been developed and
issued. Coaxial cable meeting this specification will be used for
aerial and direct burial applications in broadband systems.

The REA field trial of fiber optic type cable has been very
successful. The cable, installed in an REA borrower system, has been
in operation for more than a year and illustrates that a fiber optic
system provides extremely reliable service in rural areas, that fiber
optic cables can be directly buried in the ground like regular
telephone cables and that rural telephone company personnel are able
to maintain and operate a fiber optic system with good success. As a
result of this field trial REA is encouraging the use of fiber optic
plant where it is economical.

REA has a contract with a manufacturer for the partial financing of a
project to develop and make available on the market a reenterable
direct burial splice closure of a unique design for telephone cable
that will minimize damage from direct exposure to rain, snow, ice,
floods, temperature extremes, and sunlight. It will be reliable and
capable of being installed by telephone craftspeople and will
eliminate much of the need for above-ground pedestals, which have
high maintenance cost and are a form of visual pollution. Prototypes
of these closures have been developed and are currently undergoing
factory tests and field trials at three different locations in the
United States. An economic analysis of the present worth of the cost

of labor involved in replacing buried splices was made by REA. The study shows that the labor cost in replacing a buried splice makes it absolutely necessary to have a long lasting buried splice.

o The evolution in transmission systems for use with paired cable, microwave radio, coaxial cables and fiber optic cables. Pair gain systems are of both the analog and digital types.

REA has continued efforts toward the standardization of carrier equipment and the updating of application guidelines. The carrier specifications have been updated to reflect changes in technology and for consistency with other REA and industry specifications. Carrier application guidelines were updated to recognize new trends in this industry and to provide more specific guidelines in the application of different types of equipment. with the development of radio equipment consistent with requirements of rural telephone subscribers, REA is actively pursuing this means of serving rural Subscribers in areas where conventional telephone plant is not economically feasible or is impossible to build and maintain.

Seven sections to the Telecommunications Engineering and Construction Manual (TE&CM) dealing with telephone system noise reduction have recently been issued. Six additional manual sections on the subject are under preparation. These practices provide craftspeople the information for solving noise problems themselves which, heretofore, was generally performed by outside contract specialists.

REA has published a new TE&CM section covering engineering practices for special services that may be switched to the public service network. Work is also underway on engineering practices for private line telephone services.

Considerable activity in the lightning and electrical protection area and in protection-related specifications and standards. The engineering manual section covering the electrical protection of central office equipment was revised to emphasize the importance of a proper grounding and bonding system within all central offices, and to reflect the generally more stringent protection requirements for electronic equipment. In addition, four new gas tube

classifications, light, medium, heavy, and maximum, which are based on tube life and energy handling ability, have been established. Performance requirements also have been tightened on both gas tube and carbon type arresters.

Many rural areas in Alaska do not have telephone service. REA projects include satellite systems to bring modern telephone and television service to these isolated areas. At least one manufacturer has devoted considerable time and effort to develop a demand assignment multiple access (DAMA) system to operate over a satellite repeater to provide more economical telephone service to small rural exchanges, and to interconnect many villages for telephone service. Preliminary laboratory trials of the system are complete and a field trial in Alaska is scheduled for 1981.

Community Antenna Television (CATV) engineering design objectives are under consideration for rural systems. Lower subscriber densities make it necessary to look at designs different from those in urban areas while at the same time not compromising transmission quality. The first of a series of detailed design practices for rural CATV systems has been issued in draft for comments from borrowers, consulting engineers, and telephone and CATV industry associations. This practice outlines a departure from the current urban two coaxial

cable design currently in use by the CATV industry. The practice proposes a rural CATV design using a single coaxial cable in conjunction with low cost, relatively high gain and low distortion amplifiers. This single coaxial cable would be directly tapped as necessary to provide service drops to the individual subscribers. An all buried design in non-gopher areas averages out to an estimated cost of $6,000 per route mile which is considerably less than what the urban design would cost.

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A TE&CM section covering the design of a broadband communication system has been issued. Draft versions of manual sections dealing with customer survey and financing, are also available. The practices in these three manual sections outline information necessary for assembling a loan request package for CATV purposes. CATV/Broadband Packet has been developed by REA to be used in the engineering and construction of broadband systems. The packet includes in draft form REA specifications for buried broadband systems, aerial broadband systems, CATV station entrances and drop coaxial cable, and CATV system protection. In REA's continuing efforts to improve cable television system designs for rural areas, a TE&CM section on the use of microwave and satellites in cable television systems has been issued. REA currently is examining in detail all CATV system design applications to insure that the most effective and efficient systems are used. A new REA acceptance testing procedure for CATV systems is being prepared. In addition to providing information on how to conduct the testing procedures, the test specification limits will be provided. The new procedure will identify representative test equipment which may be applied to perform the tests. REA is also developing specifications for both active and passive cable television equipment to conform with the requirements of rural cable TV systems.

The serving area value engineering (SAVE) technique of outside plant design has gained universal acceptance by REA borrowers and their engineers. SAVE is a rural adaptation by REA of an urban technique for designing outside plant by areas to provide sufficient capacity for long term growth by analyzing the various potential mixture of physical and electronic outside plant using present worth economic studies. A measure of its acceptance is the increased usage of computer programs for aid in design. One independently furnished program has processed over 800 designs in 1979 compared to 260 designs in 1977 the year of initial operation.

O During 1980 REA held four engineering symposia where many topics of interest to consulting engineers, borrowers, contractors, trade association members and state commission personnel were presented. About 1700 persons attended. Forty percent of the program was devoted to how to build broadband communications systems, including CATV service in sparsely settled rural areas. The balance of the time on the program was devoted to rural telephone service.