Arkansas’ rural telecom subsidy fund running low

A more than 13-year-old Arkansas program that helps provide telecom access to rural parts of the state will need a boost in 2010 if it is to stay in the black.

In February 1997, the Arkansas General Assembly approved the Arkansas Universal Service Fund to “provide predictable, sufficient and sustainable funding to eligible telecommunications carriers serving rural or high cost areas.” The fund was altered in July 2007 to become the Arkansas High Cost Fund.

Revenue from the fund comes from assessments on phone bills that are collected by companies providing retail telecom services in Arkansas. Harrisburg, Penn.-based Rolka Loube Saltzer Associates manages the fund on behalf of the Arkansas Public Service Commission.

PSC Director John Bethel said the fund helps subsidize rates and invest or reinvest in telecom infrastructure.

“It’s designed to help keep telephone rates in rural areas comparable to the rates paid in urban areas,” Bethel explained.

The fund supports 27 local exchange carriers — often called legacy carriers — who operate in qualified rural areas. Size among the 27 ranges from telecom-giant AT&T to Lavaca-based Pinnacle Communications.

Between January-September of 2009, AT&T received $2.457 million from the fund. In all of 2009, AT&T received $2.7 million.

Pinnacle, a privately held company that provides telecom service in eastern Sebastian County, received $381,701 from the fund during the first nine months of 2010. In 2009, the company received $414,430 in 2009.

CenturyTel of Arkansas (commercially known now as CenturyLink), which also provides service in the Fort Smith region, received $944,714 from the fund in the first nine months of 2010. In 2009, CenturyTel collected $1.315 million from the fund.

However, the fund was upside down in 2008 and 2009 with respect to revenue and payouts to the 27 exchanges.

Revenue in 2009 totaled $20.78 million, with expenses reaching $22.075 million. In 2008, revenue was $20.345 million, with expenses hitting $22.338 million. The deficits cut into the fund’s balance.

“Cash and cash equivalents at the beginning of 2008 were approximately $2.9 million and $0.9 million at year end, Cash and cash equivalents at year end 2009 were approximately $1 million, a two year decrease in cash and cash equivalents of 95%,” noted the recently released annual financial report.

Cash and cash equivalents at the beginning of 2007 totaled $6.566 million and ended 2009 at $148,590.

When asked about the significant decrease in the fund, Bethel was optimistic the increase in revenue and potential reduction in payouts would help.

In April, the assessment rate was raised from 1.75% to 2% to help restore the fund balance and cover costs. Payouts to the 27 carriers in 2011 is estimated at $22 million. In June 2009, the assessment was bumped up from 1.49% to 1.65%.

The fund in 2009 was also hit with a reduction in overall Arkansas-based revenue reported by telecom carriers. A May 24 report from Rolka Loube Saltzer said total Arkansas retail revenue in 2009 was $1.334 billion, down 10% from 2008.