Action Update - Issue 77 :: August 28, 2006

Rural Texas Needs the Universal Service Fund

Ted Heydinger, Capital Technology Affairs

When Governor Perry signed Senate Bill 5 (SB5) in September 2005, Texas Telecommunications law got a much needed push into the 21st century.  Beyond SB5’s more publicized issues of statewide video franchising and limited retail telephone rate flexibility, the Texas legislature directed the Public Utility Commission of  Texas (PUC) to comprehensively study the Texas Universal Service Fund (TUSF) and to report is findings by January, 2007.  The PUC staff is reviewing detailed financial and operating data from regulated phone companies to consider in making its report.

The outcome of this study, the PUC’s recommendations and subsequent action by the legislature may have profound impacts on the pricing and availability of telecommunications services in rural Texas.

What is the TUSF?   The Texas Universal Fund was established by the PUC to help telephone companies keep rates affordable in high-cost rural areas.  While often referred to as a “subsidy”, the TUSF fund is not taxpayer funded, it is funded entirely from assessments on telecom customers’ bills.  The assessment comes in the form of a 5.65% surcharge on taxable intrastate telecommunications services.  The surcharge rate will drop to 5% in October 2006. In addition to keeping local rates affordable in rural areas, the TUSF also funds lifeline service to the poor, service for the hearing impaired and other programs.

While the larger companies derive most of their revenues from the dense, lower-cost and business rich population centers, the small incumbent telephone companies get a much larger portion of their total revenues from the TUSF.  For most of these small incumbents, the TUSF comprises twenty to sixty percent of their total revenues.  A loss of these funds could literally put some companies out of business.  A significant TUSF reduction could curtail the ability of others to invest in the critical infrastructure needed to support the types of services small-town Texas  needs to conduct commerce and keep rural residents connected to the rest of the world.  A reduction in the fund would most likely trigger local rate increases.  As rural income levels trend lower than in urban areas, any rate increases will be more difficult for rural customers to absorb.

Moreover, while telephone service competition abounds in urban areas, the competitive landscape in rural Texas is more complex.  Due to geography, much higher per-customer costs and fewer revenue-rich business customers, full-service telecom competitors often shun rural areas, leaving customers with fewer competitive options than their big city counterparts.  While some competitive and wireless telecom competitors are certainly making inroads to selective rural markets, often the rural local phone company is the only reliable single source of affordable telephone, DSL and internet service.   

Finally, rural incumbent telephone companies cannot pick and choose which markets and customers to serve.  As PUC-mandated providers of last resort, rural telephone companies must serve all customers within their franchise territory.  And rates must be affordable. Small town  rural farmers, ranchers, business owners and residents depend upon and demand access to the same high quality services as available in urban areas. 

A great deal of the value of the existing telecommunications infrastructure is derived from the nearly ubiquitous access to virtually any person anywhere. The TUSF has worked as the legislature intended and is largely responsible for this success.  Without access to modern services, rural customers will be disadvantaged in their ability to conduct commerce and communicate with government, health care providers and friends.  A diminished infrastructure would make the network less valuable to everyone.  Our telecom policy makers should keep that in mind as they reexamine this critical telecom funding mechanism for rural Texans.

For more information go to www.keepamericaconnected.org

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INFORMATION:
Janelle Shepard, Executive Director
Texans for Texas, Inc., 815-A Brazos St #384, Austin, TX 78701-9996.
© 2004 Texans For Texas, Inc. All Rights Reserved

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