Capitol Alert

Surcharges piling up on telephone bills

In January 2014, the California Public Utilities Commission voted to make wireless plans eligible for the Universal Lifeline Telephone Service, which offers discounted phone service to low-income residents.
In January 2014, the California Public Utilities Commission voted to make wireless plans eligible for the Universal Lifeline Telephone Service, which offers discounted phone service to low-income residents. Associated Press file

If your monthly cellphone or landline bills seem higher these days, take a look at the state surcharges.

Since the fall, California phone bills have included almost 8 percent in telecommunication surcharges, the highest in nearly 30 years. They generate revenue for programs designed to bring phone or broadband service to millions of residents with low incomes and people who live in remote parts of the state.

The main driver of the growth has been the Universal Lifeline Telephone Service, a program that provides discounted residential telephone service to poor people. Scrambling to generate enough revenue to keep the program solvent, state utility regulators approved three surcharge increases in a span of 12 months, a nearly fivefold increase. Customers have not been happy.

7.894%State surchage rate on California phone bills, used to subsidize service to some customers

“There was an estimation problem,” said Sarah DeYoung, executive director of the California Association of Competitive Telecommunication Companies. The back-to-back-to-back surcharge increases, she said, “got people’s attention.”

Six state telecommunication surcharges show up on California telephone bills. Others, such as a fee for the advanced services fund, help pay for broadband service in places that have none, provide discounted coverage to certain schools and other government facilities, and services for the deaf and disabled. All told, the programs will spend almost three-quarters of a billion dollars in 2015-2016, according to Gov. Jerry Brown’s proposed budget this month.

The largest is the lifeline program. Created by the federal government and launched in California in 1984, it offers discounted phone service to low-income residents, with the program limited to one person per household. Each participant gets a monthly discount of up to $12.65 from the state lifeline program, and a federal discount of up to $9.25.

Until relatively recently, the program covered only landlines. Participation in the lifeline program steadily fell as landlines became less popular and more people signed up for mobile or voice-over-Internet phone plans. The number of lifeline participants dropped from about 3 million at the end of 2006 to 1.1 million by the end of 2013 – less than one-third of the 3.7 million Californians industry groups believe are eligible for the program.

In January 2014, however, the utilities commission voted to make wireless plans eligible for lifeline assistance. The decision followed growing pressure from customers, carriers, lawmakers and others, amid complaints that low-income customers with mobile phones effectively were subsidizing landline-only users.

For the first time, participants could sign up for discounted voice, text and data service.

And sign up they did. By July 2015, the lifeline program had 2.2 million participants – about a third more than the Public Utilities Commission had estimated and double the lifeline subscriber count during the 2014-15 budget year.

“Opening it up to wireless was a pretty dramatic change,” said Ross Brown, who tracks the program for the Legislative Analyst’s Office.

2.2 million Number of California Lifeline Program customers as of July 31, 2015

To pay for the move, the utilities commission increased the lifeline surcharge for the first time in years, raising it from 1.15 percent in October 2014 to 2.4 percent in January 2015.

But phone carriers’ claims for reimbursement continued to exceed revenue. Last June, the agency told carriers to expect delays in their claims for reimbursement “until such time the imbalance between surcharge revenues and current program growth are back in balance.”

Later that month, utilities commissioners raised the surcharge once again, to 3.8 percent. A few months later, regulators raised it again, to 5.5 percent, effective Oct. 1, with a goal of building a reserve.

The commission’s Office of Ratepayer Advocates gave its blessing to the increases.

“We didn’t want the lifeline program to go under,” said Chris Ungson, the office’s program manager for communications and water policy.

Telephone companies over the years have backed the lifeline program, which brings them customers who otherwise couldn’t afford the service. Yet some companies have raised concerns about the growing costs. Last fall, T-Mobile said the 5.5 percent charge was unprecedented, as was the estimated reserve it would create. Brown’s proposed budget includes a $292 million lifeline reserve by June 2016.

Just as regulators increased the surcharge, however, they could also opt to lower it in the future. A staff report hints at the possibility, saying the commission “will adjust the surcharge level once an appropriate fund balance has been achieved and customer growth stabilizes.”