State regulators cut a phone bill surcharge

State utilities regulators Thursday ordered substantial cuts to the subsidies paid to telephone companies for providing conventional land-line service in rural areas.

But as those befuddling surcharges go down, monthly rates will rise.

Carriers will be allowed to levy a small increase on residential phone rates, and cellular users, who have been paying the bulk of the subsidies, will eventually see a discount on their monthly bills.

Consumers pay into the fund through a surcharge on their monthly phone bill. The money is used to reimburse companies for installing phone lines in rough terrain and rural areas where it can be more costly to install.

Cellular customers are not excused from the fees, even though they derive little or no benefit. The Associated Press reported in January that monthly surcharges had enriched the state’s telecommunications giants by $1.6 billion since 2003, with 60% of that paid by cellphone users.

Despite lobbying by the state’s largest carriers to keep the subsidies intact, the California Public Utilities Commission voted unanimously to reduce the payouts by more than $315 million over the next two years and to cut the surcharge on monthly phone bills by 40% beginning in January.

Commissioner Rachelle Chong, who pushed for the reduction, said the decision was driven by a surplus in the fund.

“We looked at how much we collected, and we have plenty of money because we have slightly over-collected,” she said.

Customers will see the reduction on their monthly bill beginning Jan. 1.

However, the PUC softened the blow on telephone companies by allowing the state’s two biggest carriers, AT&T; Inc. and Verizon Communications Inc., to increase rates by more than 2% for residential customers. This will amount to an average increase of about 25 cents for AT&T; customers and 41 cents for Verizon’s.

Cellular customers will see no such increase.

Phone companies have argued that without the subsidies, they would have no incentive to provide service in hard-to-reach areas. In comments filed with the agency, AT&T; called the reduction in subsidies an “unconstitutional taking of private property.”

But critics point out that since the high-cost areas were established in 1996, many of them have been transformed by development, including suburbs east of San Francisco Bay and the celebrity enclave of Malibu.

Among those that lobbied for the reduction or elimination of the surcharges were cable television providers. Because phone companies can use the money for anything they want, the cable companies argued, it could be used to provide competing television services.