USF Reform Coalition

FOR IMMEDIATE RELEASE

Contact: Christine DeLoma
512-569-6305

cdeloma@txcable.com

PUC APPROVES $144 MILLION REDUCTION IN TELEPHONE TAX
Taxpayers, businesses benefit from reduction in telephone taxes, which are among highest in nation

AUSTIN – The USF Reform Coalition today applauded the three-member Public Utility Commission (PUC) for unanimously approving a settlement agreement reached by several phone companies, PUC staff, the USF Reform Coalition and the Office of Public Utility Council to reduce consumers’ largest telephone tax, the Texas Universal Service Fund (TUSF), by $144 million.

“The Texas Universal Service Fund was long overdue for reform,” said Kristie Ince, Vice President of Regulatory Affairs for Time Warner Telecom of Texas and a spokesperson for the USF Reform Coalition. “As a result of today’s PUC action, the taxpayers of Texas will see relief from burdensome telephone fees.”

Texas Universal Service programs are funded by a 4.4 percent tax charged to customers on every phone bill, including residential and business landlines and cellular service. The purpose of the fee is to ensure basic local phone service is provided at reasonable rates to customers in high-cost rural areas.

The Large Carrier portion of the Texas USF fund takes in nearly $395 million each year. It is distributed as a subsidy to eligible incumbent phone companies. As a result of the settlement, Large Carrier TUSF payments to AT&T, Verizon, Windstream and Embarq will be reduced by $144 million or 36.5 percent by 2012.

Although the TUSF fee is charged to every customer receiving a wireline and wireless phone bill, cable companies offering voice and wireless-only providers are not subsidized by Large Carrier TUSF.

AT&T Texas, which has deregulated approximately three quarters of its service areas and is currently the largest recipient of the fund, will see a about a 70% reduction in its subsidies once all changes are implemented .

“These reforms will help level the playing field and promote competition in the Texas’ telecommunications market by eliminating unnecessary subsidies to the largest phone companies,” Ince said.

The settlement agreement stems from the PUC’s review of the Large Carrier portion of the Universal Service Fund. The Legislature directed the agency in 2005, as part of SB 5 to review the amount of subsidies distributed to the biggest telephone companies.

The Small and Rural Carrier Fund is not affected by the settlement, nor are any other USF programs such as Lifeline which benefits low-income Texans, and Relay Texas which assists the hearing impaired, Ince noted.

Key terms of the settlement agreement approved by the PUC include:

• TUSF payments to AT&T, Verizon, Windstream and Embarq will be reduced over a four year period beginning Jan. 1, 2009.

• The four telephone companies will be allowed, but not required, to recoup at least a portion of their USF reductions through residential basic rate increases implemented over four years (three years for Windstream).

• Deregulated exchanges will no longer be eligible to receive USF support, as of January 1, 2009.

• As part of the agreement, the Parties agreed to refrain, for four years, from supporting any legislation that would alter any aspect of the settlement. They also committed to support an increase in the Lifeline program, in regulated exchanges. PUC staff will initiate a separate rulemaking process within 30 days to consider increasing support amounts in the program.

• Additional reporting requirements to make the Texas USF fund more transparent to the public will be addressed in a subsequent rulemaking by the Commission.

The USF Reform Coalition is committed to revising the Texas Universal Service Fund so that it meets its goal of providing basic, local telecommunications services at reasonable rates to customers in high cost rural areas, while not unfairly taxing customers and lining the pockets of highly profitable incumbent phone companies. Coalition members are Sprint Nextel Corporation, Time Warner Telecom of Texas LLC, Time Warner Cable Information Services (Texas), LLC, and TWC Digital Phone LLC.