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Business/Economy

Alaska’s telecom regulator considers early end to fund used to boost rural service

  • Author: James Brooks
  • Updated: September 12
  • Published September 12

A multimillion-dollar fund used to pay for improvements to rural telephone and Internet service in Alaska is running out of money, and state regulators have begun discussing whether it makes sense to simply end the fund rather than fix the problem.

The Alaska Universal Service Fund is already scheduled to close in 2023, and in a Wednesday meeting of the Regulatory Commission of Alaska, members pondered whether it makes sense to simply end things early. Commission chairman Robert Pickett said he would “strongly lean toward” that approach, but “that would be a shame.”

“In rural Alaska, there continues to be a need" for service," he said, and ending the program early would be a “nightmare for the companies that are relying on certain payment streams. What you assumed you can count on for your budget has gone away.”

A GCI spokeswoman said by email that her company has “not yet been able to analyze specific impacts” but is concerned about the shortfall. Heather Cavanaugh, a spokeswoman for ACS, wrote by email that “the Alaska Universal Service Fund helps keep phone service affordable for Alaskans living in high-cost areas.”

“Should the program end entirely,” she wrote, “prices for local phone service would likely increase in rural communities and/or services would decline.”

The universal service fund was founded in 1998 and distributes fees levied on phone service to companies across the state.

In 2018, according to the annual report of the company that manages the fund, Alaska telecom companies received $29.5 million in universal service payments.

ACS received a plurality of the money, more than $7 million spread across its various branches. Matanuska Telephone Association received $6.6 million, and GCI received $2.6 million. United Utilities, which operates in the Yukon-Kuskokwim Delta, also received $2.6 million. Copper Valley Telephone Cooperative received $2.4 million, and two other utilities received more than $1 million each.

Last year, the Regulatory Commission approved a swath of changes to the fund. Among those was the end of state support for “lifeline” telephone service and a cap on the universal service fee.

Partially because of that cap, the fund entered 2019 at a deficit, paying out almost $350,000 more per month than it took in. The fund suffered an even bigger blow when an unidentified cellphone provider changed its billing program in a way that further reduced revenue. The fund is now paying out about $740,000 per month more than it takes in from fees.

The identity of that cellphone provider, and the nature of the change it made, have been kept confidential by state regulators.

The fund is still expected to collect about $1.25 million per month, but it has been paying out almost $2 million per month this year. By November, if nothing changes, the fund will run dry, and fund managers will have to decide what bills to pay.

“The size of the fund has decreased over time and will likely continue to decline unless changes are made,” wrote Christine O’Connor, head of the Alaska Telephone Association, the state’s leading telecom trade group. “A shortfall has seemed likely for some time; the uncertainty has been in predicting when the shortfall would occur. However, even without change, the fund is unlikely to run out of money in the near future. But without change it will be diminished, and a continuing shortfall will mean that companies have less resources to invest in and operate networks.”

Regulators are already considering what changes could be made. On Wednesday, RCA staff presented a variety of options to their board.

The most direct approach would be to simply reduce payouts, something that must be done by regulation, but staff cautioned that additional reductions in fee collections are possible, and “staff further suspects that other wireless carriers may follow suit” in using arbitrage to reduce their fee payments to the fund.

Other suggestions include revising the rules for what areas or programs are eligible for universal service money or changing the regulations for how the fee is collected.

No action was taken Wednesday, and the issue remains in front of state regulators.

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