Might handle the problem by putting the termination fees on a sliding scale based on call volume. Telco lines are fixed assets, if one line is getting millions of calls then the cost of that line should be amortized faster than assumed in the region-wide termination fee.

There will be complaints that revision will kill jobs in rural areas. Thus does the regulatory state accumulate, and willfully retain, misallocations and distortions.

This sort of rent-seeking and regulatory arbitrage is an inevitable outcome of regulation. Notice that while the stated goal is support for the little people, it's insiders and sharpies and incumbents who benefit most. Remote phone service seems a worthwhile goal, and I'm not sure I see a clearly better way of doing it, but let's just keep our eyes open to the costs.

An even easier way to handle it is to simply make conference calls on rural lines not get paid.

If the call is not ultimately terminated at an actual human resident of the area then no termination fee shall be paid.

It's outdated in the sense that the original reason for the high fees was to make it economically viable to provide service to people in rural areas. But the original sunk costs of wiring every home and business have long been paid off, and the digital-ization of the phone network has drastically reduced the ongoing costs of providing service to those folks. So it's outdated.

On the other hand, there are plenty of local CLECs in rural areas that make money from these fees, and they continue to lobby hard to keep the tarriffs and fees as they are.

So it's both, really.

Further, the phone call itself does not have to physically terminate in the locality the rate center represents. For instance, a free conference calling service's VoIP servers may be hosted anywhere (e.g. AWS), not necessarily in Iowa. Thus, the reason the Telecommunications Act of 1996 provided for this type of compensation is non-existant in this type of VoIP scenario.

The maintenance of those (very long) lines is not free. However, if these local companies can do this, they are obviously receiving more than they need for that.

In any event, do cell phones make this whole model pointless (or are there similar ways to encourage building towers in the middle of nowhere)?

The sunk costs to those particular lines receiving this traffic have been recovered. Others, not so sure. See my comment above.

Remember too that there are maintenance and replenishment costs. Over the long run, all costs are marginal.

I think it's fascinating in and of itself that large telecommunication companies are inconvenienced in any fashion for the purpose of market diversity and fair competition. I would enjoy reading more about such laws.