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Residential telephone subscribers pay a monthly rate for local service that is less than the cost of access — the service of being connected to the telephone network. If the current subsidy from interstate long-distance calls is eliminated, local rates would rise an average of $4 per month (at 1981 cost levels). Telephone rates should include a monthly charge equal to the marginal cost of access, but higher monthly rates for access could induce some households to do without telephones; to mitigate this problem targeted subsidies, optional rates, and restricted service plans might be developed.
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