USF Rate Increase Information

October 1, 2007

Effective October 1, 2007 your bill from Smithville Telephone Company will increase $2.00 per month. The reason for this increase goes back many years and, as you might suspect, involves many levels of government regulation. This is not something Smithville supported and I felt this was important enough for me to send you a personal explanation.

Rather than bore you with the legal and regulatory complexities of the decision I would point out that the main driver of the increase is a change in one of the federal programs that helps maintain reasonable rates for customers served by telephone companies that operate in more rural, higher cost areas. As a part of dealing with that change, a new Indiana Universal Service Fund was created. One of the requirements of using this high-cost support funding mechanism is that rural telephone companies must institute a "rate rebalancing" that mandates rate increases for all telephone companies in the state whose rates are less than minimum rates that the state regulators have deemed "reasonable and comparable". Our rates are among the very lowest in the state and will continue to be among the lowest.

What this means is that in order for us to draw support from the Universal Service Fund to keep rates as affordable as we can, we must raise our basic local service rates $2.00 per month for residence customers and $2.50 per month for business customers. While all of this may seem like a windfall in revenue to Smithville, in fact, Smithville at the end of this process will have the same revenue as when we started.

The larger telecommunication companies were successful in getting the government to move revenue from these support programs to your monthly base rates. Smithville was against this plan from the beginning. We did try to have this order overturned, and were part of a group of companies that fought the change all the way to the Indiana Supreme Court, but, in the end, we did not succeed in that effort.

You should also be aware that the rebalancing of rates will require Smithville to implement an additional, but smaller, rate increase next year. Please be assured that Smithville Telephone is doing all it can to keep its rates affordable while providing the highest quality, advanced services our customers deserve. Should you have any questions please go to our website www.smithville.net where you will find answers to your questions or give us a call at 876-2211.

Thank You,

Darby McCarty,

President/Owner of Smithville Telephone Company