A small rural telephone company in southern Oklahoma has been named to a national list of top recipients of support from a federal phone surcharge on customer bills.
Terral Telephone Co. had about 250 customers in southern Jefferson County near the Oklahoma-Texas border. It was No. 8 on a list of per-line costs in 2010 for support from the federal Universal Service Fund.
Terral received more than $2 million in 2010 from the federal Universal Service Fund, translating into a cost-per-line of more than $8,242, according to researchers for the Alliance for Generational Equity. The Las Vegas group is active in research on telecom and consumer issues.
The federal Universal Service Fund began in 1996 to boost access to telephone and Internet services across the country. It's funded by fees added to customer bills by wireless and landline telephone companies. The fund collects about $8 billion each year.
Universal Service Fund fees go to several federal programs, including a high-cost fund for rural service and Lifeline, a program that helps low-income households afford landline and wireless phones. Other programs support telecom services to schools, libraries and hospitals.
Terral's per-line cost reimbursements from the high cost portion of the Universal Service Fund grew from $6,228 in 2005 to $8,242 in 2010, the report said. The average per-line payout to rural phone companies from the program in 2010 was $580.
Topping the list was a phone company in Washington, with per-line costs of $23,491 for 16 customers around a resort lake town. The report's authors conceded that the top 10 companies on their list were outliers. But they said the program's high cost is an example of bad policy that subsidizes voice services to rural areas when wireless and satellite services are available to almost 98 percent of rural populations.
“This is a textbook example of how not to run a government subsidy program,” said report co-author Scott Wallsten, a fellow at the Georgetown University Center for Business and Public Policy and former economist at the Federal Communications Commission.
Terral charges residential and business customers between $14 and $16.50 each month for basic service.
Ron Comingdeer, an attorney who represents Terral, said the company is a “carrier of last resort” that has many rural and low-income customers in its service area. Its customer count fell to about 215 in 2012.
“They have an obligation to provide service to those customers,” Comingdeer said.
He said the cost to provide service in Terral's service area is much higher than phone companies that serve urban areas. Wireless service is spotty in Terral's service area, so it's not an option for many of their customers.
“These large companies cross subsidize across their customer base,” Comingdeer said. “They can get enough customers in the cities so they can provide coverage to rural areas.”
The FCC made changes to reimbursements from the federal Universal Service Fund's high-cost program in 2011. It capped per-line payouts at $3,000 and established an annual budget of $4.5 billion. The changes will be phased in over several years.
Terral petitioned the FCC for a waiver from the changes, saying it would lose a combined $1.3 million in federal support from 2012 to 2014.
“Reductions in universal service support at these levels will impact the ability of the company to continue to provide high-quality service to its subscribers,” Terral's president and general manager, Dick Segress, wrote in a June 2012 letter to the FCC.
Segress also said the company was in danger of defaulting on a $4.8 million loan it received in 2011 from the federal Agriculture Department. Proceeds from the loan are being used to convert Terral's copper network to a fiber network capable of providing voice and broadband Internet.
Terral also receives money from the Oklahoma High Cost Fund and the Oklahoma Universal Service Fund, two state programs that are funded from fees on telephone customer bills.
The Oklahoma Corporation Commission is contemplating the elimination of the Oklahoma High Cost Fund, which helps rural carriers provide service under a $37 million annual program funded by surcharges on long-distance calls from landlines.