By Andy Vuong The Denver Post October 09, 2011
A ratepayer-funded program established two decades ago to ensure affordable phone service for Colorado residents still considers about 30 percent of CenturyLink's roughly 1.4 million land-line subscribers in the state to be rural and overly expensive to serve, including those in parts of Aurora, Parker and Fort Collins.
Based on 1990 census data and implemented before the proliferation of cellphones, the program continues to reimburse more than $50 million annually to CenturyLink to cover the difference between the cost of providing service to the roughly 417,000 customers and what it can charge.
In some cases, the High Cost Support Mechanism is refunding to CenturyLink and rural carriers for multiple lines that serve one household, according to the Colorado Office of Consumer Counsel.
The consumer office wants the program overhauled, questioning whether it really is high-cost for CenturyLink to serve many of the areas that still qualify for the subsidy. It's an issue state regulators have reviewed for years, most recently last week when they killed a proposal to phase down the high-cost fund.
Qwest, which was acquired by CenturyLink this year, said expenses including network maintenance and upgrades still exceed the $17 a month it can charge for basic residential phone service in some areas.
"We support regulatory reform in Colorado, but we also would note there will continue to be areas where high-cost support is necessary; otherwise we would charge them ungodly amounts," said Jim Campbell, regional vice president for CenturyLink.
Fewer land lines now
Last year, Qwest was reimbursed $137.40 a month for each land-line customer in Ovid, a small town in northeastern Colorado.
And even though Parker is more developed than it was two decades ago, there are residents on the outskirts of the town that are still hard to reach and serve, Campbell said.
Federal studies show that 99.8 percent of the U.S. population now has access to wireless service and 97 percent is covered by at least three carriers. In the years since the launch of the high-cost fund, hundreds of thousands of residents have dropped their land lines in favor of wireless or Internet-based phone services.
In 2010, there were nearly 4.7 million cellphone subscribers and 500,000 Internet phone customers in Colorado, according to the Federal Communications Commission.
"The significant line losses experienced by traditional wireline providers combined with the significant number of customers served by non-traditional providers . . . demonstrate that consumers can obtain a variety of telecommunications and broadband service at reasonable and comparable rates," the consumer office wrote in an August filing that pushed for a review of the program.
The state collects a small fee on every land-line and cellphone bill to fund the high-cost mechanism. Regulators raised the surcharge this year to 2.9 percent from 2.2 percent, even as the consumer office argues that technological advancements have lowered the cost of providing phone service.
The model that determines which areas qualify as high-cost needs to be based on 2010 census data because "there are fewer rural areas than there were before," said Bill Levis, director of the consumer office.
"The purpose of the high-cost fund was to make sure that people had access to phones at a reasonable rate," Levis said. "What's happening now is that it's sort of ballooned into something beyond what we think it should be."
Last week, the three-member Colorado Public Utilities Commission granted CenturyLink's request to kill a proposal from PUC staff that would have cut the high-cost fund in half over six years.
Most goes to one provider
The state collects about $60 million annually from the high-cost surcharge and distributes the money to about 10 carriers, though the vast majority is directed to Qwest/Century Link. One wireless carrier, which does business as Viaero, also draws from the fund.
Twenty-one states have such a fund, and Colorado's is the third-highest in the country behind California and Texas. PUC commissioners Joshua Epel, James Tarpey and Matt Baker want to review the high-cost fund as part of a broader regulatory reform effort, said PUC spokesman Terry Bote.
"It's not a dead issue," Bote said.
This past legislative session, state lawmakers introduced a sweeping telecom reform bill that would have phased out the high-cost fund over 20 years and eliminated rate regulation over phone service in Colorado. But the measure, drafted after months of discussions with industry and regulatory officials, received little support and faced staunch opposition from CenturyLink. Sponsors quickly withdrew it.
FCC Chairman Julius Genachowski last week announced plans to reform the Universal Service Fund, the federal version of the high-cost fund.
Genachowski wants to shift the federal subsidy to support broadband rollout in rural areas.
AT&T state president Bill Soards, a proponent of telecom reform in Colorado, believes the state will look to shift the high-cost fund to support broadband deployment.
"That really wasn't part of the conversation last year," Soards said. "The FCC has shifted that debate."
He expects another telecom reform bill to be introduced during the next legislative session.