It's outdated in the sense that the original reason for the high fees was to make it economically viable to provide service to people in rural areas.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 So it's outdated.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.
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)?
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.