Senator Eliot Shapleigh - El Paso, Texas

Texas telephone customers will probably see a lower state surcharge on their monthly phone bills if the Public Utility Commission signs off on a tentative agreement announced Wednesday by several communications companies.

Lawyers for several phone companies, Time Warner Cable and cellular carrier Sprint Nextel Corp., told the PUC that they are close to reaching a compromise that would change the Texas Universal Service Fund and the phone tax that supports it.

The fund, which disbursed $394.9 million to four phone companies in 2007, is designed, among other things, to underwrite the costs of providing phone service in rural and remote areas, where the cost of extending service is higher than in more-populated areas.

Critics say the fund, which comes from a 4.4 percent tax on phone and cell-phone bills, amounts to an unwarranted subsidy for AT&T Inc. and Verizon Communications Inc., which get most of the money. Rural legislators say the fund is important for assuring modern communications services to their constituents.

The PUC staff recently recommended a 60 percent cut, by about $230 million a year, which triggered the discussions among the companies.

Time Warner, Sprint Nextel and other members of the group, called the USF Coalition, endorsed the staff proposal.

AT&T objected to the recommendation, which would have cut its disbursement by about 98 percent.

An agreement would be a rare truce among the large telecommunications companies, which are engaged in an intense battle for customers. AT&T and Time Warner in particular are duking it out for customers with packages that include television, high-speed Internet and digital or traditional phone service.

If a compromise can be reached on the Universal Service Fund, it would head off a formal hearing with the PUC, which would still have to sign off on any changes.

There were few details about the proposed settlement available Wednesday, but a spokeswoman for the Texas Cable Association said it would involve a reduction in the customer surcharge.

"There will be a reduction in the USF tax. That would be part of the agreement," spokeswoman Kirsten Voinis said.

Any change in the Universal Service Fund surcharge probably would take effect early next year.

Don Ballard, public counsel to the PUC, could not give specifics on the pending deal but characterized it as "comprehensive and what we think would be in the interests of all consumers and of phone customers in high-cost areas."

Kristie Ince, regulatory vice president for Time Warner Telecom, said the settlement could be the biggest between telecommunications rivals in Texas without having to go before either the PUC or the Legislature to settle disagreements.

The fund had not been changed in 10 years and needed an update, Ince said.

The settlement, she said, "is a recognition that there are high-cost areas in Texas and a need for the USF fund. It is a matter of making sure that it is sized appropriately based on revenue and cost numbers and on new (communications) policy."

Ince said the companies involved in negotiations wanted to reach a compromise that would resolve the issue and not let it become a potential political football.

"It can be such a hot-button issue, and we really felt to the extent that a settlement was possible, it was in everyone's best interest to not have it dragged out through the next (legislative) session," she added.

The proposed changes affect only the largest part of the fund, which provides money to phone companies that deliver service to rural parts of the state.

The largest recipient in past years has been AT&T, the largest phone company in Texas.

Other parts of the fund help pay for the cost of providing service to the hearing impaired and other phone users.

The Legislature directed the utility commission to re-examine the fund as a part of Senate Bill 5, a sweeping telecommunications reform bill that passed in 2005. The phone companies receiving money from the Universal Service Fund last year were AT&T, Verizon Communications, Windstream Communications and Embarq Corp.