Money for Nothing

Posted on March 19, 2012

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Earlier this month,Representatives Angela Williams and Carole Murray joined with Senators Mark Scheffel and Lois Tochtrop to introduce Senate Bill 157, which proposes to reform the Colorado high cost fund. To gain support for the reform, the legislators apparently cut a deal with several corporations that get paid by the fund, and the bill explicitly states that the Colorado Public Utilities Commission must continue to pay millions of dollars to the companies even if the money is no longer necessary to serve the interests of consumers.

Don’t get me wrong: reforming the fund makes sense. The fund was originally designed to support telephone service to rural areas, but in recent years technology has evolved to the point where the fund is no longer necessary to get service to most rural consumers. The market has developed to a point where in many areas numerous companies provide phone service to rural areas in Colorado, including cable, wireless, and satellite companies. In those situations, it no longer makes sense to pay one of those companies to provide service.

To fix this problem, the draft legislation adds the following language to the statute that created the universal service fund (40-15-208):

The commission shall establish a schedule to eliminate support for [local phone companies] in any areas in which it determines that consumers have access to basic local exchange service at affordable rates, rendering such financial support to meet universal service goals no longer necessary.

That makes sense—in areas where the commission finds that universal service funding is not necessary, it should eliminate those payments (or ramp the payments down over time). And the new law goes on to define where funding is not necessary: any area where 90 percent of consumers have a choice between at least 5 providers. In those areas, universal service funding will be eliminated. It is the rest of the paragraph that makes no sense. A handful of corporations had the audacity to add language that says that the commission can take away funds only from one company, CenturyLink. [Until recently, I worked for Qwest (the predecessor to CenturyLink), so I will not talk about whether taking away money from them is appropriate.] Even more brazenly, those corporations added one last sentence to the paragraph:

Support for rural local exchange carriers and competitive local exchange carriers shall not be reduced by operation of this subparagraph.

The effect of this paragraph is explicit. The commission cannot reduce payments to these corporations even where: 1) Consumers have the ability to get service from 4 other providers; and 2) The commission has determined that payments from the fund are not necessary to help consumers.

This language applies to ten companies that currently get $4 million from the fund each year, nine wireline companies and one wireless provider, Vaiero. The fund will end in 2025, but for more than a decade, the commission is not allowed to reduce the $2.5 million Vaiero gets from the fund. The nine wireline companies will actually get more: their draw goes up from $1.5 million to $7 million. Again, the commission is not allowed to reduce these payments until 2025, even if it determines that the payments do not help consumers.

I’m not surprised that the lobbyists for these corporations had the hutzpah to propose that they keep their money even if the commission has determined that the payments no longer are necessary to help consumers. After all, it is their job, and there is a long history in this industry of legislators unthinkingly granting requests of rural and competitive telephone companies. I am surprised that the legislators agreed to this particular language. They can’t claim that they didn’t understand what they were doing or that they are doing it to help consumers. The language couldn’t more clear: these corporations will get their millions for twelve more years, even in areas where consumers have numerous other choices, and even if the commission determines that the payments no longer are necessary to support services to rural consumers. It boggles the mind–or my naive mind, at least.

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