Reading :: A consumer viewpoint on Texas telephone utilities; report of the chairman

Originally posted: Tue, 08 Feb 2005 11:01:32

A consumer viewpoint on Texas telephone utilities; report of the chairman

Texas. Legislature. Senate. Interim Committee on Public Utility Commissions.

Tracking down the term "universal service" just keeps leading to more and more interesting things. Did you know that Texas was the last state in the U.S. to establish a public utilities commission? Yes indeed. Here it is in black and white, in this interim committee report from 1971. The same year that brought us Led Zeppelin's fourth album also brought these sharp words:

Texas is the only state without a public utilities commission to regulate telephone services. We have, instead, a haphazard system of "local regulation" consisting of negotiations, often one-sided, between the telephone companies and nearly 900 city councils. (p.25)

The PUC, incidentally, was established in 1975. As a result of this report? I'm not sure yet. But it was sorely needed, because the burden borne by Texas citizens was heavier than that borne by the poor fellow on the front of Led Zeppelin IV.

The report continues:

Even if this system functioned with perfect efficiency, it would still leave unregulated two important aspects of telephone service:

(1) Monthly subscription charges in rural areas. No one, under our present system, has jurisdiction to set rates or insure high-quality service in unincorporated, rural areas. Residents of these areas do not even have the nominal protection of a city council to "bargain" with the utilities on their behalf. No governmental agency -- federal, state or local -- has the legal power to intervene and assist them in obtaining fair negotiations.

(2) Intrastate long distance rates. "Local regulation" in Texas extends only to local service in the incorporated areas; it does not -- and legally cannot -- extend to regulation by the city councils of the rates charged by Southwestern Bell for long distance calls made to other points in Texas. The Federal Communications Commission regulates all interstate calls, and in every other state, a state commission does the same for intrastate calls. In Texas, there is no regulation whatever of the rates Southwestern Bell may charge for intrastate calls. The company, indeed, refuses even to disclose its profits on such calls. They have refused to let any governmental body -- federal, state, or local -- see how much they make on this important aspect of their service. (p.25)

Amazing! Southwestern Bell was really allowed to run the table in Texas. Vast swathes of Texas were left entirely unregulated. And the regulated portions were regulated by municipalities, which had neither the information nor the financial resources to regulate telephone service in a thoroughgoing way. "Only Houston and Dallas make even a token effort at regulation. The smaller cities do not have the financial resources to hire the rate experts and attorneys necessary to argue their citizens' case against the numerous specialized, highly-paid telephone company representatives" (p.26). The report goes on to describe Nacogdoches' futile battle against the vast resources of Southwestern Bell (pp.26-27 and Appendix A), using it as a case study in favor of establishing a PUC.

The Nacogdoches case was an extreme illustration of the rate inflation that had dogged the entire state. Across Texas, "businesses are being burdened with intrastate leased-line charges that are between 200% and 400% higher per-mile than comparable interstate leased lines subject to F.C.C. regulation. The discrimination is obvious" (p.23). And the average monthly rates for consumers were higher in Texas than the national average -- across all sizes of telephone exchanges. "San Antonio, for example, has a monthly rate of $6.40, while San Diego, California, which has a comparable Primary Calling Area, enjoys a rate of only $4.90" (p.3).

Rates weren't the only problem. Rural service was poor. "The constable in the east Texas town of Zavalla reported that his patrol car's two-way radio frequently must serve as the only communications link for telephone subscribers whose equipment has broken down during the weekend" (p.23). And jurisdictional disputes between telephone companies resulted in problems for consumers. "This infighting among utility monopolies reached its most ludicrous extreme at the Ramada Inn in Nassau Bay, where a call from the barber shop to the front desk was a long distance, toll call" (p.23).

The report recommends, sensibly, that statewide regulation be introduced.

Prices and standards of service are regulated in most businesses by competition or the "law of the marketplace." When no such competition exists -- as in the case of most public utilities -- a monopoly situation is created. Government, which has created or preserves the monopoly, has a duty to protect the consumer by insuring that he is getting the service for which he pays. A monopoly per se is not hostile to the public interest; but an unregulated monopoly easily may be. (p.28)

Essentially, the committee is saying that a regulated monopoly becomes a de facto public utility. No more half measures -- Southwestern Bell had to be made to work in the public interest (p.29). This is true in large and small measures. One example the authors use is that of advertising space, which telephone companies routinely charged to their subscribers rather than their stockholders. "They have abused this privilege. Recently, for example, Southwestern Bell spent an undetermined amount of money to send its customers a recipe for 'Virginia Raisin Pie'" (p.30). Sure enough, the report includes a copy of the recipe, which is addressed to wives whose husbands have "a cravin' for raisins." Apparently this didn't fit under the committee's understanding of universal service.

One last thing. The committee suggested that the PUC include an opt-out option for each city and town. If a municipality preferred to regulate telephone service itself, their sovereignty trumped the PUC's authority. I'm interested in whether this provision made it into law.

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