No More Backscratching Between Phone Companies

by on August 13, 2012 · 0 comments

An ad campaign urged residents of Butler, GA to “Stop AT&T From Raising Your Rates” by planning to attend a public hearing earlier this month at the Taylor County Courthouse to provide testimony in Docket #35068, Rate Cases on the Track 2 Companies.

The Georgia Public Service Commission sets the phone rates in Butler, but politics are politics, and AT&T is a better scapegoat for an ad campaign. AT&T doesn’t even provide the town’s phone service, although the telecom giant does help finance it. That’s because Georgia consumers pay a hidden tax on their phone bills that subsidizes the phone service provided by Public Service Telephone Co. in Butler. You guessed it, PST paid for the ads.

Congenial industry relations were a hallmark of the regulatory era.  The large companies that contribute the bulk of the subsidies mostly kept quiet, because they needed political support from the smaller companies that receive the subsidies to convince legislators and regulators to reform outdated rules that destroy proper incentives for investment and innovation. Besides, they could also pass the cost on to their customers. Nowadays, these firms simply can’t afford to play this game as they struggle to compete.

PST currently charges $17.27 per month for residential phone service, which is exceptionally low if you consider that in Atlanta the cost of residential phone service was $28.26 in 2007 (the last year such data was published by the Federal Communications Commission). The price in Butler may go up by 10%, according to PST, if the commission denies part of the company’s claim for assistance from the state’s Universal Access Fund.

PST is one of only three companies requesting in excess of $1 million in annual support from the fund, which is just one of several sources of subsidies these companies receive. At a hearing last August in Atlanta, certain expenses at PST received particular scrutiny, including: holiday party catering ($2,044), travel to industry meetings in the Virgin Islands ($913) and Alaska ($5,398), aircraft rental ($10,921), executive compensation ($1.2 million) and dividend payments made to the owners ($2 million).

AT&T, the Cable Television Association of Georgia and the Competitive Carriers of the South all participated in the hearing, because each has an interest in minimizing the burden that contributing to the fund imposes on consumers (most of whom receive no benefit). Captive ratepayers are a thing of the past as new technologies have given consumers added choices and reduced many of the costs of doing business, enabling providers of voice and video services get into each other’s business and offer consumers better value.

Revenues have been tanking for providers of traditional telephone service as more consumers discontinue landline service in favor of Internet-enabled VoIP and/or mobile phones. To survive, the phone companies can and must fully exploit new revenue opportunities that lay in cable TV, mobile phones and broadband.

Large and midsize providers may be forced to write off significant investment in facilities that are no longer needed, regardless of anticipated depreciation schedules. The Georgia legislature passed HB 168 in 2010 to protect small rural providers like PST. The legislation ensures sufficient funds for these lucky firms to recover their investment for several more years, even for facilities that are no longer in service. This means that even if their revenues continue to shrink, their subsidy entitlements will grow on a dollar for dollar basis. Similar firms in other states aren’t so fortunate.

As signed into law, HB 168 made it hard for consumers to monitor the cost of this arrangement. Since the legislation prohibited voice service providers from establishing a surcharge on bills consumers can see how much they are contributing, the firms have been forced to find less transparent ways of recovering this assessment. Fortunately, the legislature has since amended the law so that a fee can appear on bills beginning next year.

As manager of the fund, the Public Service Commission is attempting to act as a prudent steward. Telecom companies that contribute to the fund but receive little if any benefit, including but not limited to AT&T, are attempting to look out for millions of Georgia consumers who stand in the same shoes. These consumers would like to save money like everyone else, and they would also like to know that pubic resources are being managed responsibly. There is nothing sinister about that.

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