Lawmaker calls to study state's rural-phone fund

Discussion during this year's legislative session about a fee charged on Arkansans' cellphone bills often drew conflicting answers over how the revenue is used to benefit customers and suggested changes would meet resistance, a state legislator recalled recently.

A universal service fee is applied by telecommunications providers in the state to "promote and assure the availability of universal service at rates that are reasonable and affordable, and to provide for reasonably comparable service and rates between rural and urban areas," as defined in Arkansas Code Annotated 23-17-404.

The fee provides revenue to the Arkansas High Cost Fund, which the statute established in 2007. The High Cost Fund is to provide funding to telecommunications carriers to expand phone and broadband service to rural areas of Arkansas.

Rep. Michelle Gray, R-Melbourne, sponsored successful legislation to fund improvements to the state's 911 system, but first had to amend out all references regarding the use and funding formula for the High Cost Fund. Public testimony by those in support of and opposition to the original bill filled a legislative committee room.

Gray now wants to have an interim study done on the High Cost Fund and possibly make changes to it during the next legislative session, she said.

"I want to see what the interim study produces and see if we need to make any changes to the High Cost Fund," Gray said in a recent interview. "I think we need to look at that fund and see if it is being used appropriately and, if not, we need to fix it. What we do in the next session probably depends on what this study finds.

"We've made multiple attempts throughout the year to change the High Cost Fund and we always met with resistance from everyone," she said. "I think it's time we peel it back and see what all is in there and what's going on."

Gray said she heard differing answers from telecommunication company representatives during testimony concerning her initial bill, ranging from companies being able to "spend the money on whatever they wanted" to there being "specific things for what they can and can't spend that money."

"We need consistent answers and see that all of the [telecommunication companies] are spending the money appropriately," she said.

"Essentially, the [legislative] members need to be educated on what that fund is, what it does, how the monies are assessed and are distributed," Gray said. "I want to have an interim study and look at that fund and see if there is enough accountability, or if we need to add more. Maybe change the calculation and how things are being done."

The fee charged on customers' bills is a percentage-based rate of each carrier's intrastate revenue, or the revenue that comes from calls made within Arkansas, said Kala Mitchell, manager for Arkansas Rural Strategies in Danville, which has been the administrator for the Arkansas High Cost Fund since July 2017. Rural Strategies is under a two-year contract with the Arkansas Public Service Commission, which oversees policy issues regarding the fund. The commission is the firm's only client.

Revenue from the fee is provided as support for infrastructure investments regarding broadband and other telecommunications services provided by the carrier receiving the funds, Mitchell said. There are 22 telecommunications companies across the state that make such investments and receive support from the fund.

"The beneficiaries of the fund are the customers of the telecommunications carriers in rural areas of the state," Mitchell said in a recent email. "The funds are used to provide comparable service and rates for broadband to rural customers as is available to their urban counterparts that would not otherwise be available and affordable."

The rate amount and any changes depend upon the amount of intrastate revenue reported by each of the carriers that pay into the fund, Mitchell said. The amount of total revenue collected in the fund remains consistent, but the rate is adjusted based on the review of the carrier's reports, she said. The fund administrator is charged by the state Public Service Commission with calculating the rates. The carriers receive notice and can review any rate changes prior to their implementation.

A legislative review of the High Cost Fund, and any needed tweaks to the fund, would be welcomed, said Donna Gray, executive director for the Public Service Commission -- speaking, she said, only as a member the commission's general staff. Contracting with an administrator for the fund is also pursuant to state statute, said Gray, who is no relation to Rep. Gray.

"The scope of her [the administrator's] calculations is set out and formed by the statute," the PSC's Gray said in a recent interview. "If there are any legislative observations about its operation or anything, we certainly are open to that because we operate under that directive anyway.

"Whatever the legislature decides in that regard, as a general staff, we would be trying to carry out," she said. "What we are really trying to do is operate within the confines of the statute."

Telecommunications companies are required to pay into the Arkansas High Cost Fund and allowed, but aren't required, to surcharge their customers to recover their payments to the High Cost Fund, Mitchell said. The latest annual total of $68.3 million is the total calculated cost of all telecommunications companies. A capped Arkansas High Cost Fund amount of $39.8 million, established by statute, represents the total funds distributed to fund participants.

"These amounts fluctuate as companies cycle through construction projects," Mitchell said. "As companies deploy broadband and voice facilities throughout their networks, these investments cause the company's costs to increase.

"The revenue is provided as support for broadband and other telecommunications services provided by the carrier receiving the funds," Mitchell said.

The High Cost Fund allows improvements in rural areas of the state. For example, in April, customers of Danville-based Arkwest Communications Inc., in Yell, Perry and Scott counties, began paying less for fiber-to-the-home Internet services, thanks to infrastructure improvements partly funded through the High Cost Fund, said Tom May, Arkwest plant manager.

In the first quarter of 2018, Arkwest completed a 10-year project to provide fiber-to-the-home service to its customers. The service uses fiber-optic cable to provide much greater bandwidth for existing and future services, according to the company's website. Beginning with April statements, customers' charge for the default speed of 10 megabits per second decreased from $34.95, plus tax, to $19.95, plus tax, across the board, May said.

Arkwest provides basic local and long-distance telephone service, high-speed Internet services and digital television service, mostly in Yell County and also in Perry and Scott counties, but isn't countywide in any of the three, May said.

The total amount returned to Arkwest from the Arkansas High Cost Fund in 2018 was $5,731,545, which helped to pay for installation of its fiber-to-the-home services. The fee charged on Arkwest telephone bills is 7.25 percent, based on the qualifying regulated services. Each company determines how they label or identifies the fees on subscribers' bills.

"We got some return from the High Cost Fund and that was used to make the [U.S. Department of Agriculture] loan payments," along with other sources, May said in a recent interview.

"That is applied to the network investments that we made," he said of the funds returned to Arkwest. "The majority of it was that fiber-to-the-home. We actually buried 914.75 miles of fiber.

"Fiber allows a much better quality service," he said. "You eliminate virtually all your electronics in the field that is lightning-susceptible. We can provide the same quality service to every customer. The one that is farthest from our office gets the same quality service as the one next door now."

The support that companies receive in a year is based on the company's total investments and maintenance costs associated with loop cable and loop equipment costs for two years prior to the investment, Mitchell said.

"The companies submit costs for infrastructure investment, but they do not submit detailed project plans," she said.

The Arkansas High Cost Fund has an annual independent audit conducted by a "qualified independent firm," Mitchell said. Arkansas Rural Strategies has never had an audit exception, she added. Telecommunications companies, as individual carriers, are also required to undergo an annual independent audit and be subject to federal audit and oversight, Mitchell said.

"The telecommunications industry is highly regulated and we spend significant time analyzing detailed federal filings that are required of state communications companies," she said.

The Arkansas Universal Service Fund was established by Act 77 of 1997. Act 385 of 2007 changed the name to the Arkansas High Cost Fund and also included broadband in addition to telecommunication services. Statutory requirements for a Universal Service Fund have existed since 1947.

Metro on 05/27/2019

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