IssuesStatewide NewsState of Texas Owes $200 Million to Rural Telecommunications Fund, Phone Provider Group Says

In 2020, the Public Utility Commission declined to raise fees that finance the fund mandated by state law, setting it on the path toward insolvency.
June 23, 2022
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The State of Texas is now $200 million in the hole with its Universal Service Fund (USF), created by the state to subsidize telecommunications coverage associated with its universal service mandate.

According to a letter from the Texas Telephone Association, which has sued the state, that total will grow to $300 million before the next legislative session begins in January — growing $416,018 per day. TTA’s letter was sent to Gov. Greg Abbott, Lt. Governor Dan Patrick, Speaker Dade Phelan (R-Beaumont), and the Public Utility Commission (PUC), among others.

The PUC declined to comment on the letter due to the ongoing litigation.

The USF is funded by a 3.3 percent monthly per line fee on intra-state operators, the returns of which have shrunk substantially as more and more communication happens over the internet. In June 2020, the PUC rejected a motion to increase that surcharge to 6.4 percent to ensure the fund’s solvency. It was rejected due to the pandemic’s economic downturn and opposition from the commissioners to raising taxes for anything at any level.

At the time, the amount owed was a now relatively paltry $60 million — requiring a 45-cent increase in the monthly fee.

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“I think this is not a time when we should be raising taxes on people, particularly not…in the way…this almost irrational singling out of this group of people who we would be taxing,” now-former PUC Commissioner Arthur D’Andrea stated at the time.

Last session, a bill was proposed to fix the fund by applying the fee to Voice over Internet Protocol (VoIP) connections along with traditional phone calls. It passed both chambers of the legislature, but Gov. Greg Abbott vetoed it for the same reason that D’Andrea elucidated.

The universal service mandate was established three decades ago by the legislature to ensure that 911 emergency calls may be relayed in all corners of the state.

Financial turmoil within these telecommunications companies and cooperatives has led to a spike in service rates for customers in remote areas of the state. As of last November, one satellite telecommunications provider, Dial Tone Services, increased its monthly rate by 140 percent.

Earlier this month, panhandle-area satellite phone provider Digital Telephone Service told its 3,000 customers that their service will cease after August 15. Pointing specifically to Abbott and the PUC’s actions, they said, “Looking forward, providing satellite phone service to customers like you in remote, rural areas of Texas, is simply not economically feasible with this reduced level of reimbursement from the State.”

The company negotiated a service transfer for customers with another provider, Range Global Services, which will charge $300 per line per month.

“We realize that many of you have been affected by the border crisis or other life-threatening emergency situations like what we just witnessed in Uvalde,” the company added. “We have helped save many lives over the past sixteen years in business in Texas and it will be a shame when an unnecessary tragedy happens because you or someone else cannot access emergency services.”

One-third of the company’s customers are first responders.

Digital Telephone Service said that “if the USF issues are resolved,” their ability to provide service may change.

“When the court restores funding to these rural telecom customers, the state will owe this money and potentially owe interest and attorney’s fees as well,” reads the TTA’s letter.

Making their case, TTA adds, “It is important to note the Commissioners of the Public Utility Commission who made these decisions two years ago have moved on, and new Commissioners are now in place. They have the ability to address this funding shortfall without any statutory change and could do so in an open meeting almost immediately.”

Each PUC commissioner in office at the time of this decision has since left following the fallout from February 2021’s blackouts. In addition to telecommunications regulation, the PUC oversees the power grid.

TTA suggests either an increase in the per-call fee percentage or expanding the base of taxation to VoIP calls, as the legislature aimed to do last year. To make up the difference, TTA says the USF fee will now have to increase from the current 3.3 percent to 15 percent.

VoIP calls already may be subject to the tax, but the PUC has avoided ordering so.

The USF plays a role in servicing 1.3 million households across the state, along with schools and emergency services outfits. It is not funded by general revenue, only by the telecommunications fee.

The lawsuit against the state is still pending in front of Texas’ 3rd District Court of Appeals. Twenty-nine Texas House members, mostly from rural areas, submitted an amicus brief in support of TTA’s petition.

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Brad Johnson

Brad Johnson is an Ohio native who graduated from the University of Cincinnati in 2017. He is an avid sports fan who most enjoys watching his favorite teams continue their title drought throughout his cognizant lifetime. In his free time, you may find Brad quoting Monty Python productions and trying to calculate the airspeed velocity of an unladen swallow.