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Note: on top of this 1.3 billion, AT&T also raised local phone rates immediately after getting the state video franchise bill passed.

from: WOAI

Texas Phone Users Spend $1.3 billion Subsidizing Big Companies
Last Update: 1/14/2007 2:59:09 PM

SAN ANTONIO (AP) - Texas phone customers spent nearly $1.3 billion over the last three years subsidizing large phone companies that provide landline service in rural areas, regardless of whether other phone options are now available - or whether the area is still even rural.

Phone companies, including AT&T Inc. and Verizon Communications Inc., got the subsidies on a per-line basis for rural areas, but neither the formula nor the areas considered rural have been updated since 1997.

The telecommunications giants, which have been getting money from Texas land- and cell-phone users since 2000, have collected $1.3 billion in the last three years alone. Smaller and rural phone companies also qualify for subsidies; they collected $294 million in those three years.

Cellular phone users pay the subsidies even though they get no apparent benefit from the fees. Money in the Texas Universal Service Fund, from which the subsidies are paid, is used for a variety of communications programs that could benefit landline customers.

The Texas Universal Service Fund has collected so much money, in fact, that it has a surplus of $83 billion, prompting the state's Public Utility Commission to lower the fees' rate from 5.65 percent to 5 percent fees.

AT&T spokesman Kerry Hibbs argued that cell-phone users do benefit from rural landline improvements because it allows them to reach rural customers on the phone.

State lawmakers, who asked the Public Utility Commission for a report on the program during the 2005 legislative session, plan hearings during the current session to address the subsidies.

The subsidies are collected from customers each month, and there are few requirements to document how the money is spent or how accurately the subsidies reflect actual costs, said Roger Stewart, telecommunications attorney for the state's Public Utility Counsel, a consumer advocate office.

"There is really no accounting for how this money is spent," he said.

All phone customers with Texas area codes pay a 5 percent fee on long distance calls made within the state to contribute to the Texas Universal Service Fund.

How much they pay depends on how frequently they call Texas numbers outside their home area codes. Interstate long distance calls are not taxed for the state fund.

In addition to supporting rural phone service, the money is also used, among other things, to ensure that low-income and disabled Texans have affordable phone service.

But the lion's share of the money collected goes to big phone companies for service in areas designated as "high cost" - essentially rural communities where fewer customers use the equipment needed to provide landline service.

The program and how the costs are assessed has been altered by legislation, lawsuits and regulatory policies over the years, but the data used to determine how much phone companies can claim in subsidies is based on information from 1997, before some rural areas turned suburban and before cellular and Internet options became as widely available.

State Rep. Phil King, chairman of the House Regulated Industries Committee, plans to hold hearings this session on whether the fund is being properly administered.

"The changes in technology and the changes in Texas demographics suggests that the fund may not be allocated properly today," said King, R-Weatherford.

He expects it to be a substantial issue this session, but he said that because altering the fund's use is likely to be laborious process, the details may be better left to state regulators.

Hibbs said the company agrees the fund and formula should be reconsidered, given the amount of time that has passed since the formula was determined. But he said the subsidies continue to help rural phone customers, who might otherwise pay hundreds of dollars in monthly fees.

"The fund itself still benefits many Texans, and it's good public policy," he said. "Let's not do anything in a knee-jerk reaction."

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On the Net:

Texas Public Utility Commission report to the Legislature on the Universal Service Fund: http://www.puc.state.tx.us/telecomm/reports/TUSF/TUSF-Report-80thLeg .pdf