Firms fight over subsidies for rural phone services

A financial dispute matching wireless companies and cable providers in Georgia against small rural telephone companies could be settled this month by the state Public Service Commission.

Sprint Communications Co. and the Georgia Cable Association (GCA) are accusing the independent phone companies of using millions of tax dollars from a state subsidy to provide broadband, Internet and video services in violation of state law.

The companies, represented by the Georgia Telephone Association, deny the charge and argue that neither Sprint nor the GCA have submitted any evidence to prove otherwise.

The commission’s Telecom Committee is expected to take up the case Feb. 13.

At issue is how the independent phone companies use the money they get from Georgia’s Universal Access Fund (UAF), created in 1995 to help provide basic telephone service in rural areas that otherwise would be noncompetitive to serve. Seventeen of the state’s 29 independent phone companies received $15.9 million from the fund during the past fiscal year.

Under Georgia law, UAF monies may only be used to provide basic local phone service.

Sprint and the cable association are asking the PSC to order the independent phone companies to stop using those funds for purposes beyond basic service and to deduct the costs of the more sophisticated services, including broadband and Internet from their UAF allocations.

“We’re not against the Universal Access Fund,” said Stephen Loftin, the GCA’s executive director. “But to us, there’s a very clear and compelling case these subsidies are being used in direct competition to our companies.”

But the Georgia Telephone Association (GTA), in a brief filed with the PSC, argued that the independent phone companies already remove “non-regulated” costs from their applications for UAF money, including broadband and Internet service, in compliance with the Federal Communications Commission’s.

“With no evidence that any FCC cost allocation rule has been violated, GCA and Sprint argue only that Georgia should adopt new, additional rules to be imposed on Georgia companies over and above FCC requirements,” the GTA brief stated. “More importantly, neither GCA nor Sprint tendered any evidence of any cross-subsidy.”

“We’re not spending [UAF] money for anything other than basic local exchange service,” added John Silk, the GTA’s executive director. “The commission’s audits have verified it, as has the FCC.”

But Competitive Carriers of the South Inc., an association of competitive local exchange carriers including Atlanta-based Cbeyond Inc. and Windstream Communications Inc., submitted an exhibit prepared by the PSC’s staff that the association’s lawyer said proves the independent phone companies are using UAF funding to provide services other than basic local phone service.

The exhibit is a chart showing that all of the UAF recipients used some of their loops to deliver services other than voice, ranging from 32 percent to 82 percent of their loops, according to a brief filed by attorney Anne Lewis on behalf of Competitive Carriers of the South.

The brief also asserted that the independent phone companies’ compliance with FCC rules is irrelevant because it doesn’t pertain to the Georgia law prohibiting the use of UAF money for anything other than basic local service.

“Our laws are specific about what the UAF can be used for,” Loftin said. “The FCC hasn’t updated their cost-allocation regulations since before the Internet existed, let along broadband.”

But the GTA brief argued that the remedy the wireless companies and cable association are seeking, a new cost-allocation formula for the UAF, has never been adopted either by the FCC or any other state.

“They’ve never sold this to anybody,” Silk said. “Our companies are following the letter of the law.”

CLOSER LOOK

Here is what the Georgia Public Service Commission allocated from the state’s Universal Access Fund during the past five years to subsidize independent telephone companies in rural areas:

$15.9 million

Fiscal Year 2013

$14 million

Fiscal Year 2012

$16 million

Fiscal Year 2011

$16 million

Fiscal Year 2010

$12.5 million

Fiscal Year 2009

Source: Georgia Public Service Commission

“We’re not against the Universal Access Fund,but to us, there’s a very clear and compelling case these subsidies are being used in direct competition to our companies.”

Stephen loftin, Georgia Cable Association

Dave Williams covers Government

http://www.bizjournals.com/atlanta/print-edition/2014/02/07/firms-fight-over-subsidies-for-rural.html

Dave Williams Staff Writer - Atlanta Business Chronicle