Monday, February 07, 2005

Reading :: The Evolution of Universal Service Policy in Texas

Originally posted: Mon, 07 Feb 2005 10:12:44

The Evolution of Universal Service in Texas: A Report

by Lyndon B Johnson School Of Public Affairs

As I've discussed at length elsewhere, in the telecommunications industry, universal service is a very slippery term. It meant radically different things at different times. Charting its evolution can teach us a lot about how the entire sociotechnical system evolved, I think. Since I'm analyzing data from a telecommunications company right now, I've become very interested in looking at some more local instantiations of universal service.

Some context: This 1995 report proceeded by a year the Telecommunications Act of 1996, which overhauled the Communications Act of 1934 to (among other things) set out specific requirements for universal service. What interested me in this report was that it discussed that chimeric term, universal service, as it was enacted in Texas in the years leading up to the Telecommunications Act of 1996. The report does repeat some commonly held and probably wrong notions about the origins of universal service, but it also provides a succinct summary of the history of telecommunications in the US.

And it provides a good breakdown of the current definition of universal service: "Two main features characterize universal service: availability and affordability" (p.26). That is, people should have service in their area and they should be able to pay for it. The first feature is defined in terms of "telephone penetration": the percentage of households with phone service (p.26). Telephone penetration was at 94.2% nationally and 91.5% in Texas in 1993. (Of those without access, 40% reported that they would like phone service but can't afford it (p.75).)

Affordability is measured by "a comparison of the annual average rise in the price for telephone service with the average price for all goods and services (represented by the consumer price index)" (p.27), and evidence suggests that telephone service has become more affordable. The authors credit this to the introduction of new technology, which has caused marginal costs to decline.

Beyond these two features, the authors identify three principles underlying universal service:

1. Equality of opportunity. The idea is that citizens must be able to communicate with each other to make reasoned political choices.

2. Quality of life. The telephone is a "lifeline" for disadvantaged segments of the population such as the elderly, poor, and disabled.

3. Economic efficiency. "The rationale underlying this argument is that people place more value on the telephone network the more people are connected to it. But individuals adn companies rarely have enough of an incentive to make sure that different networks are compatible and that complete strangers are hooked up" (p.27). (Compare this reasoning to Mueller's discussion of subscriber universes.)

The authors ask: "If telecommunications services are evolving, how should the notion of universal service evolve? There is no single solution to this puzzle, and as a result universal service has been defined in several different ways" (p.28). Right. Telecommunications services have grown increasingly heterogeneous, and Plain Old Telephone Service (POTS) is arguably no longer an adequate standard for universal service. If (for instance) voice mail or Internet connectivity is an overwhelmingly standard service, then denying it to a segment of consumers violates all three of the principles above. According to the authors, the Texas Public Utilities Commission listed the following as basic services: "voice-grade dial tone service, access to dual party relay service, access to local calling areas, tone dialing service, access to operator services, access to toll services, and access to 911 or enhanced 911 service as requested by local authorities" (p.29).

Universal service used to be funded by AT&T from its profits -- part of the price of being a regulated monopoly. But with its breakup, the universal service burden fell directly to subscribers, who pay a subscriber line charge (SLC), set at $3.50/month in 1995 (p.29).

Okay, this is all good background information. But what was unique about how Texas was implementing universal service in 1995?

Texas is unique in that it has a Universal Service Fund (USF), which is financed by all telecommunications utilities in the state based on toll usage of the telephone network. The USF pays for the Tel-Assistance discount and the Dual-Party Relay Service, a program that allows hearing- and speech-impaired Texans to communicate through specifically trained operators. The fund also covers the costs of the Department of Human Services and the PUC, in addition to any other costs that are necessary to administer the fund. The discount provided under the more recently established Lifeline program is absorbed by the local exchange companies and not the Universal Service Fund. Total monthly gross USF assessments have recently averaged close to $500,000.

More recently, the Texas legislature has included a provision in the Public Utility Regulatory Act of 1995 to allow the PUC to establish rules to expand the USF for local exchange companies that serve fewer than a million access lines. ... The measure also strengthens the eligibility that local exchange companies (LECs) must meet, requiring LECs to offer service to every consumer within its cetified area and render continuous and adequate service within the area or areas. In addition, the pending legislation includes the proposal to establish a Telecommunications Infrastructure Fund. This $75 million fund will be administered by a nine-member board and financed by telecommunications providers. The board will award loans and provide necessary equipment and infrastructure to promote telecommunications services that the board finds are directly related to a distance-learning activity that is or could be conducted by an educational institution in Texas. (pp.30-31)

If these paragraphs seem a little thick to you, read them again, this time asking yourself: how does the concept of universal service get translated into actual policy? The answer is breathtaking. Universal service, which started out as the principle of interconnecting competing networks to form a single subscriber universe, had changed so much that by 1995 it required an increasingly lengthening laundry list of initiatives, agencies, charges, acts, and funds. And since the latest definition of universal service made it a moving target, we can expect to see these multiply in the future. The more telecommunications companies innovate, the more their innovations are likely to become standard, thus basic, and thus the more likely they are to come under the purview of the PUC. What a great illustration of what actor-network theorists like to argue: the inseparability of the social and the technical -- in this case, the technological innovations meant to attract new subscribers, which eventually translate in a fairly direct way into new regulative and legislative activities.

The report also discusses the history of Texas telecommunications regulation:

Before the mid-1970s, the State of Texas did not formally provide guidance or oversight over the telecommunications industry. Private utilities were unregulated by the state. In 1975, the Texas Legislature created the Public Utilities Commission. The PUC has had regulatory authority over telecommunications utilities in Texas since this creation. The PUC sets rates for all local exchange companies (LECs). The PUC regulates in accordance with the Public Utility Regulatory Act (PURA). Traditionally, PURA has required that telephone rates be dependent upon a rate-of-return scheme. This scheme provides for quarterly PUC monitoring of LEC earnings. LEC rates are then based on the cost of providing service. LECs are allowed a rate of return, or earning, based on this estimated cost. (p.44)

If memory serves, Texas was the last state in the nation to establish a PUC. (I'll have to check that.) Anyway, the PUC explicitly adopted universal service as a policy goal in 1995 (p.47), using similar language and essentially the same principles discussed earlier in the report. What interests me is how Texas handled universal service earlier, and I don't think the report is entirely clear on that point. How did the term become introduced and how did it evolve?


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