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Over 50 Telephone Providers Sue State Over Missing Payments from the Universal Service Fund

The State of Texas owes $60 million in Universal Service Fund (USF) fees supposed to be remitted to telecommunications providers throughout the state, says a new lawsuit filed by the Texas Telephone Association (TTA).

The TTA comprises roughly 50 telecom providers — many of which are member-owned cooperatives — tasked by the state with expanding service to their designated areas.

Filed in Travis County District Court, the lawsuit requests a court order requiring that the state remit its missed payments to the providers and issue a permanent injunction requiring the state to fulfill its obligations henceforth.

In a statement to The Texan, TTA Executive Director Mark Seale stated, “Filing a lawsuit is the last thing TTA wanted to do and it is with regret that we do so. However, at this point, TTA and our members were simply not left with any other viable options.”

Under state code, every Texan is entitled to a telephone connection and thus, telecommunication companies are tasked with fulfilling that directive. This was chiefly codified so that emergency 911 calls could be counted on to go through, and the USF was established in no small part to ensure that the networks necessary to provide that guarantee could be built and maintained. 

Rule §26.420 of the Texas Administrative Code lays out the mandate, reading, “The TUSF administrator will administer the TUSF in accordance with the rules set forth in this section and in accordance with the guidelines established by the commission in its contract with the TUSF administrator. The TUSF administrator’s general duties shall include … (C) calculating and collecting the proper assessment amount from every telecommunications provide … (D) disbursing the proper support amounts..”

Texas, being the massive and geographically diverse state it is, does not make jumping that hurdle an easy feat.

It costs thousands of dollars to build and maintain telecom infrastructure in Texas’ sparsely populated rural areas. With limited opportunity for return on investment due to the undersized customer base, providers rely on a subsidy of sorts to offset the outsized costs incurred.

This comes from the Universal Service Funding mechanism, financed by a 3.3 percent charge on intrastate-based calls. The Public Utility Commission (PUC) is tasked with remitting these fees to telecom providers that lay telephone cable in sparsely populated areas.

In the lawsuit, the TTA alleges that the state has refused to sufficiently compensate the telecom providers. In June 2020, the PUC rejected a motion to increase the fee to 6.4 percent to compensate for a deterioration in collections caused by a decrease in the types of calls that qualify for the fee.

Seale continued, “[T]he PUC has statutory obligations to create and administer the 11 various programs of the USF and issue disbursements on a non-discriminatory basis. For the first time in history, the PUC is attempting to overturn this entire body of prior decisions, regulations, and statutory direction by refusing to fund amounts it previously determined must be distributed.”

The commissioners rejected the increase, in large part due to the pandemic and its resulting financial stresses.

At an open meeting on June 12, Commissioner Arthur D’Andrea stated, “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.”

Chairman DeAnn Walker added that she preferred to “leave the fund as it is but to direct staff … to begin paying out of the [USF] to only fund lifeline projects so that those continue to be funded but to leave everything else as is.”

PUC commissioners are appointed by the governor.

The fee runs about $0.50 per month for each customer and the rate hike would’ve increased that to $0.95.

The filing states that without the increase, the USF fund barreled toward insolvency. The fees actually remitted by the PUC to providers during the last six months, the TTA estimates, is roughly 66 percent below what the PUC is statutorily required to distribute. Those providers who rely on the stopgap funding say without the injunctive relief, their shortfall will cost them $80 million in 2021 and north of $140 million in 2022.

The situation poses an interesting political dynamic as the state, controlled by Republican officials, is juxtaposed to its rural voter base. Former President Trump won counties with fewer than 30,000 voters in Texas by 54 percent. That’s a margin of 584,221 and accounts for 92.5 percent of his entire statewide margin of victory.

For Abbott, his 2018 election painted somewhat of a different picture. The governor won counties with fewer than 30,000 voters by 57 percent, but his margin there only accounted for 21 percent of his total margin of victory.

While not within the purview of the court, politically, the PUC’s decision to withhold the funds will affect the very base heavily responsible for their occupancy in those positions — if the fiscal projections of those providers come to fruition.

The state is also bracing for a broader financial dilemma with a projected $950 million budget shortfall for this biennium. Financial woes are falling upon governments and individuals alike.

“If allowed, the current course of conduct of the Commission will have a direct and immeasurable impact on the millions of rural Texans our members serve,” Seale concluded.

And, depending on the court’s ruling, the state’s commitment to cushion the blow of its mandate may get the red-marker treatment — or it’ll be forced to learn the lesson of treating prosperous financial times like they’re permanent.

The PUC did not return a request for comment by the time of publishing.

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