AT&T Increases the Property Tax Allotment Surcharge

AT&T Increases the Property Tax Allotment Surcharge

Tony: Hello, today is Monday, January 27, 2025.  I’m Tony Mangino from TC2 and this is Staying Connected.  On today’s podcast we’ll be discussing the recent increase in AT&T’s Property Tax Allotment Surcharge (PTA) and more broadly how surcharges increase the bottom-line cost of your ICT services. 

Joining me today is Deb Boehling from LB3.  Deb advises Fortune 500 companies on their ICT transactions and knows a thing or two about the impact of surcharges.  Deb, welcome back to Staying Connected!

Deb: Thanks Tony, it’s good to be back!

Tony: So Deb, tell us about AT&T’s announcement that there is an increase in the PTA surcharge?

Deb: If by “announcement” you mean posted deep in the bowels of the AT&T online service guide, then yes, AT&T has announced an increase in the PTA.  Jokes aside, AT&T has increased the PTA surcharge from 4.55% to 5.6% effective January 1, 2025…so, happy New Year!  To be fair, this increase brings AT&T into closer alignment with both Verizon and Lumen who also have PTA charges right around 5.5%.  All of the suppliers have, to varying degrees, surcharges that apply to the various services and/or service components of their primary enterprise networking products. 

Tony: And these surcharges are mandated by the FCC or some state/local regulator?

Deb: Well, no.  The suppliers prefer to shift the blame for these additive costs onto regulators, you know, “its USF”!  The fact is that while these charges are standard fare across the industry they are not required by the FCC in the strictest sense and typically are levied to shift some of the cost of doing business onto the customer.  PTA is a perfect example.  AT&T says that the charge “is not a tax, but recovery of an expense that AT&T is required to pay”.  The slight of hand here is that yes, AT&T is “required” to pay its state and local property taxes, but they are NOT required to pass those costs (or a portion of them) onto the customer.

Tony: Then, in the case of AT&T, there is the “administrative expense fee” they assess for processing USF payments and the Federal Regulatory Fee (at a staggering 13.99%) and all of that applied on top of the actual USF fee, which for Q1 2025 is 36.3%, up from 35.8% in the last quarter of 2024.  The other suppliers have similarly styled charges with slick names like the “carrier cost recovery charge”, and the “Carrier Annual Regulatory Charge”, the “Cost Recovery Fee” and on and on.  And, if your heads not spinning enough, I’ll add that these surcharge regimes are not consistent across the suppliers and they change even within the same supplier, based on the type of service. 

Deb:  Exactly, and these charges typically reside in online service guides where they can be increased at the discretion of the suppliers.  Tony, you made an important point about surcharges differing based on the type of service.  Can you expand on that?

Tony:  Sure.  Take AT&T for example, for their AVPN MPLS service they charge USF and all the surcharges come with it on the dedicated access component of the service in the US.  While for their dedicated internet service, or ADI, they charge a flat per port charge of $13.99 in lieu of USF and such on the access component.  Verizon, for their part, charges USF and associated surcharges on dedicated access in the US regardless of the service, MPLS or DIA. 

The question becomes, what can an enterprise customer do to address these charges in their supplier agreements?

Deb: From a contract perspective, competition is critical to success. You may seek to eliminate the online service guide, and have all costs, including application and surcharges, “fixed” or “capped” in the agreement. This eliminates the risk of increases in existing surcharges or new ones, but the approach will be strongly resisted. A well drafted material adverse change to the online terms clause also helps. The material adverse change clause is most effective when the supplier must notify you of increases in costs, including USF and surcharges, and material changes to other terms. Going full circle, if you don’t succeed in having all costs and applicable terms “fixed” in the contract, including a snapshot of the online terms reviewed during negotiations against which to measure adverse changes is a best practice.

Tony: From a financial perspective, knowledge is power.  Customers need to understand the total cost of ownership of their networks.  When building the business case for a technology migration (the shift from legacy MPLS to Internet first is a great example) customers must be able to calculate the total cost of the proposed solution accounting for these surcharges and be savvy enough to accurately quantify the differences in the suppliers’ proposed solutions.  The reality is that, in most cases, the account teams aren’t even clear on what applies to what, where and they certainly don’t broadcast these additive and material costs in their proposals unless forced to.  This is a key input in the financial analysis of supplier proposals that we conduct in our client engagements at TC2.   

Deb, any final thoughts on the subject?

Deb:  Suppliers can be sneaky, even when their teams are unaware. Ask key questions in a competitive RFP and review the applicable online terms. Use this knowledge and the competition for power to negotiate market leading financial and contract terms. 

Tony: Thanks Deb.  To our listeners, if you would like to learn more about how to quantify the impact of these surcharges on your total cost of solution ownership, and to discuss strategies for addressing these charges in your supplier agreements, or if you’d like to discuss other ICT needs with Deb or me, or any of our LB3 and TC2 colleagues, please give us a call or shoot us an email.

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