OKLAHOMA CITY – An alternative funding mechanism the state Corporation Commission approved for financing universal telephone service and a lifeline fund in Oklahoma may prevent what might have been a sharp increase in telephone bills for consumers.
The commission approved an interim order that modifies the “contribution methodology” for underwriting the Oklahoma Universal Service Fund (OUSF) and the Oklahoma Lifeline Fund (OLF), switching from an assessment based on telephone provider revenue to one based on provider connections.
Chairperson Dana Murphy and Commissioner Todd Hiett endorsed the proposal. “I’m willing to see how the connection-based methodology is working,” Murphy said. Commissioner Bob Anthony, though, abstained. “I will not participate in signing the order,” he said and provided no explanation for his decision.
The Oklahoma Legislature established a universal service policy that requires funds to be available to “promote and ensure the availability of primary universal services, at rates that are reasonable and affordable … and to provide for reasonably comparable services at affordable rates” in rural and urban areas alike. The Oklahoma Telecommunications Act of 1997 established the Lifeline Fund within the Universal Service Fund.
The OUSF fee that telephone customers are charged subsidizes ’phone services to remote and rural areas in order to keep those services affordable for customers. The Corporation Commission declared long ago that telecommunication services are a necessity, not a luxury
The OUSF supports broadband service for schools, libraries, and non-profit hospitals, to help them defer their costs for the provision of the internet to the patrons, students, and patients they serve. The OUSF also ensures Primary Universal Service for rural Oklahoma, and reimburses rural telephone providers for upgrades to their basic telephone service, said Matt Skinner, the Corporation Commission’s public information manager.
Effective November 1, contributions from telecommunication providers will be based on the number of connections they report to the Federal Communications Commission, Oklahoma City attorney Ron Comingdeer said.
The contribution rate will be a maximum of $1.14 per month per connection. Comingdeer described a connection as “essentially a connection that allows the customer to make and/or receive a telephone call from the public switched network.”
The assessment will apply to all telephone connections, mobile as well as landlines.
The fee is levied on the companies. “It’s up to the telephone companies to decide whether or not, and in what manner, to pass the charge on” to their customers, Skinner said. “But those that do pass it on all seem to do it monthly.
Oklahoma and federal law require “contributing providers” to support the OUSF and the OLF, said Comingdeer, the managing attorney in the Crowe & Dunlevy law firm in Oklahoma City and formerly the deputy general counsel of the Corporation Commission.
State law defines “contributing providers” to mean companies that provide intrastate (in-state) telecommunications, that offer intrastate telecommunications for a fee on a non-common-carrier basis, that provide wireless telephone service, and/or that provide interconnected Voice over Internet Protocol (VoIP).
Currently, the OUSF fee is an assessment applied to retail revenues that providers receive from intrastate telecommunications services and VoIP, said Brandy Wreath, administrator of Oklahoma’s Universal Service Fund.
USF IN THE ‘RED’
Because of a deficit in the fund, the Corporation Commission quintupled the OUSF contribution rate for Fiscal Year 2020: from 1.2% to 6.28%, effective July 1, 2019. The assessment did not apply equally to all telephone customers, Skinner said. “Landline customers carried a larger burden.”
Subscribers to large ’phone companies such as AT&T, Verizon, Cox, and Sprint “pay for most of the rural service subsidies,” Corporation Commissioner Bob Anthony said last year. The commission was informed by AT&T that its OUSF assessment would jump from 75 cents per month to $3.91 per month. Another company raised its fee from 57 cents a month to $3.26, Anthony said.
To ensure solvency in the OUSF, the contribution factor under the revenue-based system would have had to double to 12.73% later this year or early next year, Wreath testified before the Corporation Commission in June.
“That’s why the connections-based approach was developed,” Skinner said.
The revenue-based assessment was expected to generate more than $53 million in Fiscal Year 2020, Anthony said. However, the OUSF is “about $11 million upside down,” Skinner told the Southwest Ledger on August 6. Disbursements from the OUSF from July 1, 2020, through June 30, 2021, totaled $41,476,656, a spreadsheet on the Corporation Commission’s website shows.
The shortfall can be explained in part by a reduction in federal financial support. Also, “there continues to be a downward trend in assessable intrastate revenues,” Wreath wrote. The latest projection of revenues subject to assessment in Fiscal Year 2021 to support the OUSF was 27.7% lower than the year before, he said.
Under the revenue-based methodology, “wireless providers can allocate revenues to jurisdictions or classifications that remove such revenues from being subject to assessment,” Wreath testified. For example, besides interstate communications, television bundled services and web subscriptions are non-assessable for purposes of funding the OUSF and the OLF, Skinner said.
“This significant downward trend … is not unique to Oklahoma and is also impacting contributions to funds supporting” universal service programs in other states and the Federal Universal Service Fund, Wreath said.
The new assessment method goes into effect on November 1 and will be based on provider connections counted on September 30.
Wreath, director of the Corporation Commission’s Public Utility Division, testified last year in a related case that telephone connections in Oklahoma numbered 5,857,000.
Annual revenues under the connection-based system are projected to reach $63.8 million, Wreath calculated.
VOTE WAS 2-0-1
Within the next two months Wreath is expected to file with the Corporation Commission a “status
report” on “any areas of focus/concern” with the new assessment method. Additionally, the commission is
scheduled to evaluate the conversion in six months.
Although Commissioners Murphy and Hiett endorsed the connections-based assessment method, both said the OUSF needs attention from the Legislature. The Universal Service Fund requires “some legislative ‘fixes’ to make it sustainable long-term,” said Hiett, former Speaker of the Oklahoma House of Representatives.
Attorney John W. Gray Jr. said AT&T Oklahoma is “not supportive” of the order but “will hold its nose and work with all of the parties” in the case.
“I believe this order is a win for Oklahoma customers,” attorney Comingdeer said. “As the order states, a connections-based methodology is equitable, non-discriminatory, competitively neutral, and not inconsistent with federal law. The order also states that this connections-based methodology will be more transparent for consumers and regulators.”
In the OUSF/OLF case, Comingdeer represented a host of smaller Oklahoma telcos. Those included Medicine Park Telephone Co., Oklahoma Western Telephone Co., and Southern Plains Cable, which are owned by the Hilliary Family, publishers of the Southwest Ledger and The Chronicle based in
Elgin.
Also in southwest Oklahoma, Comingdeer represented Terral Telephone Co. in southern Jefferson County and Pioneer Telephone Cooperative, which serves Comanche, Temple, Grandfield, Chattanooga, Davidson, Frederick, Tipton, Manitou, and Apache.