| More Thoughts on the Universal Service Fund |
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| by Will Lutz | Fri, Apr 18, 2008, 01:05 PM |
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One of the challenges of writing a long story about a complex regulatory issue is one necessarily has to leave out some important background information to cut it to the proper length.
Last week, we published a story about the truce between the traditional telephone carriers, cable, and cell phone companies over the Texas Universal Service Fund (TUSF). A point alluded to in the article, but not expressly mentioned, was the fundamental nature of changes in technology and the industry that have occurred since the mid-1990s. In the 1999 session, Southwestern Bell (then primarily a local telephone company) and A.T.&T. (then a primarily long-distance carrier) were feuding over access charges that local companies charge long-distance carriers for the ability to connect to their lines. Now SBC and A.T.&T. are the same company. As anyone who has seen telecommunications advertising can attest, the best deals are now available for bundled products -- where one gets local, long-distance, video, cellular, and/or Internet access from the same carrier. In some sense, the critics of the TUSF would argue it is a throw-back to the days when state policy dictated subsidizing basic local service through higher fees on other services. The importance of bundling is a fundamental change in the industry, was part of the rationale for SB 5 in 2005, and was debated in the regulatory filings in the TUSF case. Hard numbers on the impact of bundling on the industry are hard to come by, because most of that data is proprietary in a competitive market. In early 2007, the Public Utility Commission issued its scope of competition report, which does a pretty good job of explaining these trends, though the data is more than 18 months old. We post a PDF copy here for those interested. Speaking of the TUSF deal, we thought it might be helpful to include below the chart that explains what happens to A.T.&T.'s subsidy under the plan. We know for certain that -- if approved by the Public Utility Commission -- the settlement requires phone companies in A.T.&T.'s service territory to forgo $111 million in TUSF subsidies by 2012. Of that amount, however, the company may try (but is not required) to recoup $72 million through rate increases on basic local phone service. So exactly how the settlement will affect the company's bottom line is hard to predict. How available are bundled products in those rural areas and will customers switch to them in response to rate hikes? How would the market react to rate increases? All of these are unknown. In any case, we post the chart from the settlement agreement here for those interesting in watching the industry.
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