Advances in communications and related technologies have spurred economic growth and created tens of thousands of jobs in Texas. The past few years have seen enormous advances in the availability of broadband across the state as communications companies have invested billions in infrastructure. One reason for this trend, especially in rural and remote areas, is the support provided by the Texas Universal Service Fund (TUSF).
During the long period of telephone regulation, service to high-cost areas was partially funded through the rates that were set for other, more densely populated areas and for long-distance calling. This phenomenon was almost completely hidden from the typical customer. Once the market became more open to competition, such implicit subsidies were no longer possible. Thus, in order for universal service to be maintained at affordable prices, an explicit subsidy was required.
The issue of affordable service is particularly problematic in Texas because of its vast geographic territory and wide dispersion of population. In some parts of the state, the cost of providing basic service exceeds $600 per month. The TUSF, which is funded by a fee that is assessed on all basic telephone customers, provides a mechanism to reduce charges in high-cost areas, as well as programs for low-income and hearing-impaired individuals.
If you go back to the origins of the concept in the 1930s (and similar initiatives with regard to electricity and transportation), the idea was to keep rural areas integrated into the economy and society in a way that would not occur based on traditional or market criteria due to expense, remoteness, lack of density, and related factors. In today’s environment, broadband access is in effect analogous to that of basic telephone service in past decades. Areas which are not able to have such services are likely to be left behind in future economic expansion, access to modern health and educational options, and many other opportunities. This phenomenon is sometimes referred to as the “digital divide.” In essence, broadband is the new infrastructure of the country (and the world). If the TUSF were to be drastically reduced or eliminated, the incentives to invest in new technologies in the high cost, rural regions of the state would be substantially diminished.
Some critics have suggested that the TUSF should be eliminated, allowing market forces to determine telephone service. It is certainly true that markets are extremely powerful and achieve remarkable things in a seemingly invisible and effortless manner; however, they are not perfect barometers of optimal social outcomes. Markets are, in essence, a mechanism to allocate resources. If left unfettered, they do so with great efficiency. They do not, however, honor social policies and priorities beyond efficiency, and they do not capture social benefits or costs that extend beyond private transactions.
To the extent that universal service at affordable prices is still a significant social priority, a mechanism such as the TUSF remains an appropriate public policy initiative. In the absence of some type of specific provisions, market forces will compel that all users pay the full amount of service costs (with some potential allowance for collateral sales opportunities) and affordable rates in many areas will be eliminated.
In an analysis last year (which reflected 2006 funding levels and data), my firm estimated the annual spending losses associated with the elimination of the high-cost elements of the TUSF to include almost $949 million in economic activity each year (as measured by total expenditures), $535 million in annual economic output, and 7,416 jobs. Because the telephone system forms a vital communications linkage across the entire state, a substantial portion of this loss would occur in the most populous areas of the state.
More recently, we completed an analysis which revealed a net loss to rural Texas as of 2030 associated with inadequate broadband investment of 65,800 to 92,100 jobs, $13.85 billion to $19.39 billion in personal income (by place of work in constant 2007 dollars), and $17.97 billion to $25.16 billion in gross product (in 2007 dollars). In order to avoid these shortfalls, there is little doubt that continuing incentives such as the TUSF will be necessary.
Another recent study suggested that the state as a whole could gain 173,117 jobs through more aggressive broadband adoption. This analysis compares various states and their efforts. A reasonable TUSF policy would need to be a part of such a strategy, although it would not be the sole determinant.
In response to recent legislation, the Public Utility Commission of Texas (PUC) analyzed and considered policy alternatives to update this important program. After much input and debate, effective solutions were crafted which both reform basic telephone rates and preserve the critical concept of universal service. The Commission is to be congratulated for its effort in this little noticed, but critically important area.
The entire state of Texas benefits from the availability of affordable telephone service to rural areas, and there is a compelling need to assure rapid broadband deployment. The investments can only occur with an appropriate cost-return balance, which requires a vital and significant universal service mechanism.
It has long been a goal of the PUC and the Texas Legislature to ensure that rural Texans have access to affordable telecommunications services. The recent resolution ensures that all of Texas has the economic opportunities afforded by modern communications infrastructure and that no areas are denied this essential resource. To do otherwise would be to limit the economic potential of the Lone Star State. The TUSF benefits Texans across the state as well as the state economy. Preserving it will help maintain a bridge across the digital divide.