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Reach out and tax someone
By Peter Blake, Special to the Rocky
Rocky Mountain News
Thursday, March 27, 2008

Alcohol, tobacco and -- telephone service?

Dialing a friend may not be a sin, but it's taxed like one.  Just check the small print of your Qwest bill.  Basic service is $14.88 a month, but "taxes, fees and surcharges" add another $11.22, or 75 percent -- give or take a few pennies depending on where you live.

The category includes the federal excise tax, state sales tax, county sales tax, city sales tax, special district tax, city occupation tax, Local 911 service, Federal Universal Service Fund, Colorado Universal Service Charge, Federal Relocation Cost Recovery Fee TREX (!), Colorado Telecommunications Relay Service Fund and, saving the most for last, the $6.50 Federal Access Charge.

Most of these fees are flat or are identified as a percentage of the total.  And most of them can't be raised without a vote -- by Congress at the federal level, by the people at the state or local level.

But there is one notable exception:  the aforementioned state universal service charge.  It's not listed as a percentage, but that's what it is.  Just a year ago, it was 1.6 percent of the basic service fee, but it jumped to 2.7 percent in the second quarter of 2007.  It is expected to rise again, to 3.4 percent, later this year.

That's rapid growth.

The fee, based on demand for subsidies, is computed periodically by staffers at the Public Utilities Commission, then ratified routinely by the three commissioners.

Unless the rules are changed, the fee will continue to climb.  The proceeds go to the Colorado High Cost Support Mechanism Fund, successor to a similar fund established in 1990.  It's supposed to provide subsidies to the phone companies that serve high-cost rural areas.  Many of them are tiny, but by far the largest collector of the funds -- and largest recipient -- is Qwest itself.

Indeed it received 95 percent of the proceeds in 2007 and is on line to get at least 80 percent this year.

The distributions are expected to hit more than $72 million in 2008, roughly a 20 percent increase over the slightly less than $60 million distributed last year.

"It's a transfer of wealth from the urban to the rural constituent,' notes Jim Greenwood, director of the state's Office of Consumer Counsel.  "We've been in opposition to virtually every one of the applications . . . It's a continuing subsidy that we don't think is wholly justified."

The fund has been growing faster because the PUC recently decided to streamline the application procedure that companies use to avail themselves of the money.  They no longer have to provide all the documentation they once did to justify the subsidy, and renewing it each year is a snap.

There's some irony in the fact that several of the smaller rural phone companies that use the high-cost subsidy fund charge their own residential customers considerably less than Qwest does.  One charges as little as $10.50 a month;  another, $12.

"As part of our opposition, we've been trying to nudge companies with lower rates than the average to increase their residential rates," says Greenwood.

Meanwhile, there are fears that the largest rural operator outside of Qwest -- CenturyTel, with 90,000 lines -- might apply for funds for the first time and bust the projections wide open.

At a February meeting, the PUC commissioners discussed the possibility of re-examining the rural subsidy program because of its growth.

But oddly enough, the PUC is also under pressure to expand the program instead of reduce it.  Last fall, Gov. Bill Ritter created an "Innovation Council" whose job it is to bring more broadband to rural Colorado.  The existing telephone companies would be happy to participate, and many are casting covetous eyes at the high-cost fund for financing.

But the PUC should not unilaterally expand the fund for such a purpose.  Authorization should come from the legislature.  Indeed, lawmakers should be required to vote on every fee increase instead of letting the PUC do it more or less under cover.

Peter Blake is a former Rocky Mountain News political columnist. He can be reached at