TC2's David Rohde on Telecom

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AT&T’s Property Tax Allotment increase restarts the surcharge merry-go-round

By Posted May 16, 2012

Here come more changes in the percentage-based surcharge line-up. AT&T has just increased its “Property Tax Allotment” fee from 3.17% to 4.05% of applicable revenues, effective May 1. More changes in the percentage-based federal surcharges, either from the other carriers in answer to AT&T’s property tax move, or from AT&T itself on other fees, are likely to come.

How does AT&T know that the property taxes it pays on all of its POPs and telco central offices, split among all of its customers, now comes to a rather amazing 4.05% of the kinds of revenues on which you also pay universal service surcharges?

AT&T doesn’t know that, of course, and neither does Verizon or anyone else. That’s a point on which this blog has had a lot of laughs going back to our earliest days. After all, with these property tax surcharges having about doubled in 3½ years, the implication is that commercial property has doubled in value nationwide since right before the financial crisis hit, which obviously isn’t true.

Yet AT&T could secretly claim a victory in my even attempting to justify the level of this surcharge. Doing so implicitly buys into the notion that ANY property tax surcharge makes sense if only we could determine its proper level! But of course that’s questionable as well.

So what’s really changing here? Two things, I think. First, as the non-USF percentage surcharges rise to more and more material levels, the interesting little “seams” in who exactly pays what become more important. There’s a little-known fact that some large AT&T customers on a contracting platform that goes by the acronym VTNS, which emerged from the original “Tariff 12” custom contracts of the early 1990s, do not pay all of the non-USF surcharges, and that means something.

Now I’m hardly suggesting that you should run to AT&T and demand a change in contract and service provisioning platform for this reason – that’s not realistic. What is important is that this exception is just one example of how an increasing divergence in how surcharges are specifically calculated – across carriers, billing platforms, and type of applicable services, NOT just the percentages themselves – must be accounted for in competitive bidding. Unless you know all of these variables, the attempt to account for the surcharge dollars in whatever you have out for bid is likely to fail.

Second, now is finally the time when the FCC is set to address the whole “contribution methodology” for universal service, as opposed to just looking at a range of USF distribution and intercarrier compensation issues, as it did in a very extensive ruling and report last year. Whether the rise of non-USF surcharges to almost silly levels is the last gasp of an old regime in which surcharges that have no connection to customer revenues are charged on percentages of those revenues anyway, or will be replaced by an entirely different system, is the focus of a key effort of LB3’s regulatory practice and depends on corporate user input as well. The stakes have been raised yet again – watch this space.

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