The 411 On Area Codes

People who live in cities and towns where area codes have changed have heard the explanation: that an ever-multiplying number of computers, pagers, cell phones and fax machines are forcing an area code explosion to meet demand— a surge that could one day mean 11- or 12-digit phone numbers.

But as CBS News Correspondent Jim Axelrod reports, that may not be true. Phone companies may be changing area codes simply to charge customers more, while they rely on a phone system that is obsolete.

The notion that area codes are multiplying to keep up with demand is "simply misinformation" said telephone number expert Lee Selwyn, who has watched states like California go from 10 area codes in 1988 to 25 today—and soon possibly 36.

"As long as consumers are being fed that particular story, it makes it sounds plausible that we need new area codes, " said Selwyn. "The fact is that is not the source of the problem and the industry knows that's not the source of the problem."

Selwyn's research group, Economics and Technology, Inc., says in a recently released report (Where Have All the Numbers Gone?) that the 235 area codes in use in the U.S. today could provide 1.8 billion numbers, enough for every adult and child in the country to have six phone numbers assigned to them.

The real problem, Selwyn says, is an antiquated system of distributing phone numbers in which every small community gets its own three-digit prefix, or "exchange."

That means phone companies wanting numbers for customers get them in blocks of 10,000—whether they need them or not—often tying up huge pools of unused numbers.

Complicating the problem, say critics, is that phone companies reap profits thanks to the flawed system.

Because each place has its own prefix, phone companies can charge toll rates for calls a few miles away.

Even if upgrading the current system would free up some backlogged numbers, phone companies have a financial incentive to keep things the way they are by continuing to meet new demand with new area codes.

"It's to support their ability to charge toll rates on relatively short distance calls, in some states as short as eight miles," said Selwyn. "That is the real source of the area code problem in the U.S. today."

The Federal Communications Commission says they are addressing the problem.

"I think that is one of the key steps that we have undertaken, to do down from 10,000 to 1000, and we're going to move forward and look in-depth to going down from 1000 to one-sies and two-sies," said the FCC's Yog Varna.

There appears ample room for improvement: there are now 500 million phone numbers in America, still just one-tenth of the possible 10-digit combinations.

There is also ample reason for preventing a transition t 11- or 12-digit numbers: Selwyn's group estimates that could cost the American economy $150 billion or more.