Lobbying pays off for rural phone providers

By Margaret Newkirk and Aaron Gould Sheinin


The Atlanta Journal-Constitution

A rural phone company partly subsidized by metro Atlanta phone and cable customers spent $8,000 on a trip to Alaska and a $1,300 trip to the Virgin Islands.

Metro customers also help pay for a rural phone company that owns a Florida condo and other rural phone companies that have spent thousands of dollars on parties, gold watches and luxury cars.

That kind of spending helped fuel a push to end the subsidies for rural phone companies last year at the Legislature. HB 168 cleared the House, but not the Senate.

Now it’s back.

But it allows the subsidies that prompted it in the first place to continue for years.

Billed as a sweeping modernization of Georgia’s telecommunications system, HB 168 is also a case study in lobbying clout and horse trading at the Legislature. Once intended to curb abuse and abruptly cut off outdated subsidies, HB 168 has become both kinder to the rural companies and good to one of their most powerful opponents, AT&T.

The change happened as campaign and lobbying money flooded through the Legislature, from rural phone companies, cable companies and AT&T.

Common Cause Executive Director Bill Bozarth said the spending had an effect: “You’d have to be naive to think that kind of large influx of campaign contributions and lobbying expenditures don’t have an effect on legislation.”

When House Bill 168 cleared the House last spring, it would have ended 15-year-old, state mandated “universal access” subsidies for rural phone companies, on the grounds that they’re no longer needed: Abuses found in the PSC audits were Exhibit One.

Lawmakers called the subsidies relics: “Farmer Brown not only has a phone, he’s got an iTouch and he’s surfing the Web in the field,” said sponsor Rep. Clay Cox (R-Lilburn).

Today’s HB 168, which is likely headed for conference committee negotiations, phases the subsidies out over 10 years instead. It also cuts fees rural companies collect from long distance companies. It creates a new “transition fund” to compensate them for that for a decade.

Critics say both measures offer rural phone companies an anti-competitive life raft in the increasingly competitive telecommunications world.

The Cable Association of Georgia calls it “profit insurance.”

The original HB 168 was relatively simple. It erased a law creating a universal access subsidy fund for rural phone companies.

Created in 1995, when Georgia deregulated telecommunications, the state’s subsidy fund was meant to keep service affordable in rural areas that are more costly to serve, because of the small number of customers per line. All phone and most cable companies pay into it, but the effect is a subsidy from urban customers to rural ones. Rural companies tap the fund to close gaps between revenue and spending.

The bill cleared the House in 2009 but didn’t make it through the Senate until last month, when it emerged in its mutated form. Lobbying in the meantime was intense.

Rural phone executives and their lawyers showered campaign money, for instance, on both Lt. Gov. Casey Cagle, the presiding officer in the Senate, and Sen. David Shafer (R-Duluth), chairman of the Senate’s Regulated Industries and Utilities Committee. They gave $21,000 to Shafer and another $10,700 to Cagle in the three months leading up to the session.

The bill began moving at the Senate in February. It morphed in Shafer’s committee: The House language was stripped and replaced with a bill more generous to rural phone companies and with substantial benefits to AT&T.

Alliances shifted. Cable companies and AT&T supported the original House version against the rural companies. Now, AT&T and the rural companies support HB 168. Cable does not.

The Atlanta Journal-Constitution is owned by Cox Enterprises, which also provides cable service in Macon through a separate subsidiary, Cox Communications.

Companies on all sides of the fight spent nearly $12,000 in gifts and meals for lawmakers in February alone, as the bill was nearing resolution. More than half came from AT&T, including a $1,200 lunch for all House committee chairs and vice chairs and nearly $500 in basketball tickets for Reps. Mack Jackson (D-Sandersville) and Earnest Smith (D-Augusta).

Meanwhile, the Cable Television Association, Charter Communications and Comcast spent nearly $3,500 in the same period, including a $100 contribution to the Legislative Black Caucus’ scholarship fund from Charter and $625 to the caucus from Comcast for a sponsorship at the group’s annual dinner.

AT&T also made an official presentation of $20,000 to the Black Caucus scholarship fund in February, although the donation was actually made in October. AT&T spokeswoman Sage Rhodes said the company has been supporting the nonprofit fund for more than a decade.

The ensuing bill included concessions for the rural phone companies and benefits for AT&T.

Here’s what it does:

Rural phone companies will no longer lose the universal access fund immediately. Phone and cable customers will continue to pay for it for 10 years.

The rural companies will have to raise their rates: For 15 years, many avoided doing that by tapping the subsidy and charging high fees to long distance carriers connecting to their system. The bill would tie subsidy funding to the companies’ raising rates.

The rural companies will have to cut the fees they charge long distance carriers to connect to their system. But a new “transition” fund, also supported by all phone and cable customers, will compensate for that for 10 years. State-mandated subsidies now stand at about $9 million. The new subsidy will swell that to $31 million by the fifth year of the program, before ratcheting back down, according to the state Public Service Commission.

The transition fund assumes that rural companies would not have lost some of that revenue anyway, as customers switch away from land lines. The bill’s cable critics say that makes the fund too generous, given industry trends. Georgia Telephone Association spokesman John Silk said such subsidies are common nationally, as technology changes.

Rural companies may also get more oversight. The bill ties some subsidy funds to the companies’ return to more traditional monopoly regulation. That could end some of the questionable spending and practices documented in the PSC’s annual audits of some rural phone companies. Critics, however, say it gives the companies a safe harbor in the eroding land line phone business, after 15 years of playing and profiting in a more deregulated world.

The biggest benefit to AT&T is the lopped access fees.

The fees cost the company far more than the existing universal access subsidy, said AT&T’s Rhodes.

The bill’s other benefit to AT&T is to eliminate the state Public Service Commission’s power to resolve customer complaints against the company, although the Senate’s Shafer said that has been misunderstood. HB 168 says the PSC can “receive” those complaints. It doesn’t say the PSC can resolve them. Of the $323,237 in credits and refunds the PSC ordered for all utility customers last year, nearly half — $145,650 — was for customers of AT&T.

Shafer says he supports additional PSC enforcement if it applies to all telecommunciations companies, including cable.