^{Democracy & Technology Blog} Tennessee confronts a hidden phone tax

Yesterday the Tennessee Regulatory Authority (the state’s public utility commission) heard testimony about reforming intrastate access charges (i.e, the rates long-distance carriers pay to local telephone companies when calls are handed off between long-distance and local telecom providers). The rates have been set very high, historically, to generate significant subsidies for making local service affordable and ubiquitous.
In my own remarks, I pointed out that the hidden subsidies embedded in intrastate access charges are a tax on consumers. Defenders of the status quo like to avoid that word, but a tax is a tax.
Although fully justifiable when established in 1984 upon the breakup of Ma Bell, the hidden subsidies are simply inappropriate in today’s dynamic, competitive marketplace.
Some might want to replace inflated intrastate access charges with an explicit, competitively-neutral subsidy mechanism as envisioned in the federal Telecommunications Act of 1996, but that is no longer realistic, nor advisable.
For one thing, the TRA doesn’t have the authority to create an explicit fund which is competitively neutral, because it does not have authority to require wireless and VoIP providers to participate. Rural cooperatives also cannot be required to participate. An explicit fund would be inherently anticompetitive.
For another, single-purpose voice networks utilizing switched wireline circuits are no longer the most efficient way to deliver high-quality, affordable and ubiquitous voice communications service. It’s already clear that wireless services are in many, if not most, cases more efficient – and they offer mobility. Multipurpose broadband networks can provide voice communications services at perhaps the lowest cost of all the alternatives, with many more features. The last thing policymakers should be considering at this point is hardening subsidy mechanisms for legacy networks.
Intrastate access charges should equal interstate access charges, which the Federal Communications Commission has concluded fully compensate local telephone companies for originating and terminating toll calls.
The National Broadband Plan correctly acknowledges that the hidden subsidies in intrastate access charges hinder the transformation of America’s networks to broadband, and it appropriately calls for a reduction of intrastate access charges to interstate levels.
Admittedly, local telephone companies have contributed much to local communities, the state and the nation, although that is not good reason for a bail-out. It is foolish to pretend these worthy companies are doomed unless they get government backing. They have golden opportunities to earn new revenues from wireless, broadband Internet access and video services. They can also use Internet Protocol networks to deliver voice services at significantly lower costs than maintaining legacy single-purpose voice networks.
If, for some reason, a telephone company cannot cope without legacy subsidies, Tennessee law already allows such a company to come forward with its books open ready to prove that it truly cannot provide telephone service without being subsidized by Tennessee taxpayers. This is a critical point. It’s one thing to mandate subsidies for the truly needy. It’s another thing to mandate subsidies for everyone regardless of currently-demonstrated need. Eliminating free-riders should be a paramount concern.
The hidden subsidies in intrastate access charges are unsustainable and anticompetitive, they undermine the National Broadband Plan and they are unnecessary for the provision of adequate voice services for all Tennesseans. Although this is not a pleasant observation to make, the truth is that in 2011 these subsidies amount to corporate welfare.
Tennesseans who use landline telephones to make toll calls within the state are entitled to a tax cut.
At the conclusion of the testimony, the TRA voted 3-1 to work with the Legislature address the issue.