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Changing Times, Funding Threaten Connectivity in Rural Texas

As state subsidies for Internet and phone service access for rural Texans hang in the balance, rural telephone service providers are staring down the barrel of substantial funding cuts.

A digital image of a telephone.
Shutterstock/Pavel Ignatov
As wireless providers move towards using data instead of voice calls, the Texas Universal Service Fund (TUSF), which is responsible for offsetting the high cost of connecting Texans across the state, has reduced payments received by rural telephone providers by 66 percent. 

In response to this decrease, rural telephone providers, which are now facing financial uncertainty, filed a suit in Travis County District Court against the Public Utility Commission of Texas (PUC), which oversees the fund. 

The lawsuit requests that the PUC fully provide previously approved funds to rural telephone customers. However, if no relief is awarded, the shortfall is expected to cost rural providers over $80 million this year and over $140 million in 2022, according to the suit. 

“The Universal Service Fund in Texas started in 1987,” Mark Seale, the executive director of the Texas Telephone Association (TTA), said. “Basically, it addressed that we had a phone divide that primarily affected those living in rural Texas who did not have access to telephone service.” 

However, in 1987, no one had contemplated data driving telephony or cellphones.

“Because of wireless providers moving more towards cellphones using data-heavy plans instead of voice calls,” Seale said, “the state says that it doesn’t have the money to give us and is letting the fund deplete as it waits for the Legislature to act.”

As a result, he said, “a suit was filed to compel them to pay us. Even if a change to the law did take place, it would not take effect for possibly a year and a half. We can’t wait that long.” 

In terms of how this is specifically affecting the TTA, Seale said, “Our company has only received a third of the money needed to support the networks that rely on this fund.”

As for the Public Utility Commission’s response to this issue, Andrew Barlow, the director of external affairs for PUC, said in an email that he was unable to comment on an active lawsuit.

However, a recent online meeting between Texas representative Dade Phelan and Thomas Gleeson, the executive director of PUC, shed a bit more light on this issue. 

“The Texas Universal Service Fund is funded by a statewide uniform assessment paid by each telecommunications company that has access to a customer base,” Gleeson said. “The assessment is a certain percentage of each companies’ intrust state telecommunications revenue.” 

Currently, he said, the commission has set the assessment at 3.3 percent, which was approved by the commission in 2014 and became effective in early 2015.

“The TUSF has a fund balance of $51 million as of the end of August 2020,” Gleeson said. “Monthly revenues are ranging between $10 and $10.5 million, and monthly expenditures are coming in at about $18 million.” 

“The fund,” he said, “has a balance that is decreasing by approximately $8 million a month or $96 million annualized.”

How did this happen? Gleeson said, “In February 2019, the fund balance was at $170 million. The fund was losing on average a couple million each quarter, but the fund balance was so high that a small gradual decrease in the fund balance was not considered significant to staff.”

That reduction, he said, was due to lines lost, which is a reduction in the number of access lines in the state, which are decreasing by about three-fourths of a percent each month.

“Staff began looking into what caused this revenue decline and found the primary reason was related to many wireless companies’ billing changes,” Gleeson said. “They began allocating a greater proportion of customers’ bills to data and away from voice services.” 

The statute, he said, only allows the TUSF assessment to be put towards voice services.

For example, if you had a $100 bill one month and 50 percent, or $50, was attributable to voice, and 50 percent was attributable to data, the 3.3 percent would have been assessed against the $50 that was attributed to your voice service. 

“This is a legacy fund that has been around for a really long time,” Phelan said. “For my colleagues who want the PUC to solve this issue, we have to look at this whole thing from where it started and where it is now.” 

“There have been a lot of changes since 1987 in what is urban and what is suburban and what is proper access,” he said. “I mean, is coaxial cable really the future, or do we need to be looking at fiber or something else?” 

“This is definitely an issue for the Legislature to take a look at,” Phelan said, “and again, I think there are options that don’t involve the Legislature as well.”

However, he said, “this is a big issue moving forward that won’t be solved right away.”

Katya Diaz is a staff writer for Government Technology. She has a bachelor’s degree in journalism and a master’s degree in global strategic communications from Florida International University.