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Burdensome telephone taxes — not good for consumers or Economy

A little known issue in Georgia could be putting upward pressure on rates that residential consumers and businesses pay for telecommunications services. Most Georgia consumers pay a type of tax embedded in their telecommunications bill that goes into a subsidy fund that is keeping the telephone rates paid by certain rural consumers and businesses artificially low. This fund has continued to grow over the past several years and several telecommunications companies who pay the lion’s share of the subsidy are speaking out on behalf of their customers.

For many years, the telephone rates for certain rural customers in Georgia have been subsidized through various state and federal funds. Many rural consumers are served by small telephone companies called Independent Telephone Companies.

Originally, these subsidies were created because it was more expensive to serve rural areas that may have challenging terrain or low population density. However, over time, the availability of these funds has also kept telephone rates artificially low for many of these independent telephone company customers, while the rates for customers of other telecommunications companies such as AT&T, Comcast and Windstream are designed to cover the costs of providing the services and to address competition in their markets and are significantly higher. Many of these unsubsidized companies’ customers are also located in rural areas of Georgia. As the subsidy funds grow, so do the taxes that the customers of these companies pay.

Throughout this month, the Georgia Public Service Commission will hold hearings to determine whether the business rates and rates for some telephone features for three independent telephone companies should be gradually increased to be comparable to the rates paid by other rural Georgia businesses and consumers -- those same businesses and consumers who are paying the tax to subsidize the rates of the independent companies’ customers.

State law already requires that residential telecommunications rates be gradually raised to a statewide average rate. The three companies being examined are Ringgold Telephone Co. and Chickamauga Telephone Co. in northwest Georgia and Public Service Telephone Co. in Middle Georgia.

Subsidies that keep rates artificially low for some consumers and businesses while placing a burden for those subsidies on others are unfair and hamper competition. For example, if a business in town A, served by Windstream, is paying 50 percent more for telecommunications services than a competing business in town B a few miles away, served by an independent telephone company and the business in town A is also burdened with a tax to subsidize the rates of the business in town B, then the business in Windstream territory is at a competitive disadvantage and its customers must pay more for their products and services to cover this disadvantage.

Telecommunications subsidies were designed to ensure that all Georgians had access to service, even in very rural, hard to reach or sparsely populated areas of our state. That doesn’t, however, give them a right to a special discount on market rates, especially when it harms other Georgians who have to make up the difference by paying higher prices.

The Georgia Public Service Commission is charged with striking this balance. Georgia consumers have benefited from telecom competition and our economy has benefited from the jobs created by being a leader in the telecom industry.

It could be argued that time and technology have eroded the need for telecommunications subsidies, but placing reasonable limits on these subsidies will at least move us toward a level, competitive playing field.

Kelly McCutchen is president and CEO of the Georgia Public Policy Foundation.