Provide Discounted Telephone Rates for Educational Institutions

To improve educational opportunities through networking and data sharing among both public schools and higher educational institutions, telephone utilities should provide discounted rates for certain services.


Background
Public schools and higher education institutions are communications-intensiv e and will be increasingly so in the future providing additional educational opportunities to Texas students. Many educators advocate more emphasis on distance learning, educational data and voice networks, and video and voice conferencing. This could ass ist in the equalization of educational opportunities between urban and rural areas and affluent and less affluent schools.

One barrier to expanded use is high start-up and monthly telephone service prices. A primary example is school districts use of the Texas Education Network (TENET) operated by the University of Texas (UT) System under a contract with the Texas Education Agency (TEA). The Texas Higher Education Network (THENET) is used to connect to UT s supercomputer and to access other data networks such as INTERNET, which provides on-line information to researchers, faculty and students. It can also be used to provide specialized courses from one site to many sites.

TENET operates through a contract between the UT System and TEA. Modem pools that allow local users to get onto the UT System s communication network are provided in cities where a state university is located. Users in cities or in rural areas that cannot access the modems via a local call connect to the network through an 800 number. T he UT System and TEA are testing an access method using dedicated telephone lines to connect to TENET. These lines are faster and provide more efficient access.

Each user must subscribe to local exchange service to access TENET at an average of $35 per mo nth. Of 320,000 exist-ing or potential users, only 4 to 7 percent of the target population of teachers and administrators are current subscribers. Based on the $35 monthly average, total costs for access to TENET are about $5.5 million per year paid from local and state school funding.

Most schools can afford only a limited number of lines to access TENET. Ideally, each classroom and administrative office would have individual access which would require dedicated line approach to the nearest node operate d by UT. This arrangement is estimated by UT to cost $25.8 million per year.

The Legislature regulates the telecommunications industry and delegates this function to the Public Utility Commission. Establishing rate discounts for educational institutions is consistent with the Legislature s policy to improve education by increasing access to telecommunications technology.

As a precedent for lower pricing structure, Southwestern Bell Telephone Company recently proposed to construct an $82-million, high speed, fiber optic network to interconnect all of Missouri s schools, colleges and hospitals. It would have charged each user a flat rate of $1,500 per month, about half of what a private customer would be charged. The separate medical services network will link each hospital to a major medical center at cost. 1 Tennessee has a 50 to 75 percent discount for telecommunications services for schools and at least 29 additional states are currently negotiating with their providers. 2

Telephone companies have not se t an overall policy for telecommunication rates for educational use. Texas will need to consider its own needs in determining policy. Lower rates would make TENET and other telecommunications services more accessible to educational institutions.

Recommendation
The Legislature should require telephone utilities to provide discounted rates for certain services provided to educational institutions, effective September 1, 1993.

The Legislature should mandate that the price for data lines used for network access be equal to the residential rate, that the price for other dedicated lines be two-and-a-half or three times the discounted data line rate according to line type, and that voice communication services be discounted by 50 percent. These prices should be in effect unless they are below a telephone utilities long run incremental costs, and would not need to be subsidized by other ratepayers. The specific discounts are outlined below:

Each governmentally operated educational institution, including public schools, colleges, universities, the Texas Education A gency and the Texas Higher Education Coordinating Board, should be eligible for the flat-rate service and rates available to residential customers in the applicable local exchange, except for service to an on-premise communications system.

Local exchange carriers should allow such educational institutions to subscribe to this flat-rated service for connections to the Texas Education Network (TENET) or any other network related to education.

Each of these governmentally operated educational institutions should be eligible for a rate equivalent to 2.5 times the monthly rate for residential local exchange service customers subscribing to dedicated lines, and three times this monthly rate for connecti ons to TENET or any other network related to education.

These educational institutions should be eligible for a 50 percent discount to the otherwise applicable rate for local exchange service providing the institution s voice communications needs.


Implications
These discounted rates would reduce telecommunications costs for educational institutions and would be used unless they are below a telephone company s long run incremental costs. This avoids other ratepayers subsidizing government rates through their phone bills.


Fiscal Impact
The discount for TENET access would save $4.1 million at present-usage levels. However, the preferred migration to dedicated lines would cost $2.4 million per year if each school were connected to TENET, a reduction of $3.1 million per year. Fifty-percent discounts for voice communications would result in annual savings of $12.6 million per year based upon 60,000 active voice lines and an average monthly charge of $35 per month. 3

TEA and the Comptroller estimate that schools and state-supported colleges and universities spend $6.9 million per year on voice communications needs from general revenue and other local funds. Reducing this spending by 50 percent would save $3.4 million. To achieve the savings, the appropriations for institutions of higher education must be reduced by the general-revenue savings of $2.5 million per year.

The fiscal estimate assumes that the quantity of telecommunications services will remain the same for the five-year period. This will result in a five-year savings of $17 million to the state and $78.5 million to local schools.

Fiscal Savings To Savings To Savings To Savings To Local Change
Year General Revenue Other Funds All State Funds School Funds in FTEs

1994 $ 2,550,000 $ 850,000 $ 3,400,000 $15,700,000 0
1995 2,550,000 850,000 3,400,000 15,700,000 0
1996 2,550,000 850,000 3,400,000 15,700,000 0
1997 2,550,000 850,000 3,400,000 15,700,000 0
1998 2,550,000 850,000 3,400,000 15,700,000 0

Five-Year Savings $12,750,000 $4,250,000 $17,000,000 $78,500,000 0

Endnotes
1 The institutions of higher education involved are UT System, Texas A&M System and Texas Tech University. In this system, there are 132 business lines configured in modem pools to receive local calls. The statewide-average price for these lines is $41.63 per month, and the annual cost is $66,000. UT plans to add another 56 local lines (for a total of 188) in the near future, and a tripling of lines (to around 400) in the next three years. Adding 56 lines w ill increase UT s cost by $28,000, for a total of $94,000. Tripling existing use would increase costs by $132,000, for an annual total of $198,000. These plans and projections are based on current use, growth and telephone prices. The average price for UT s local lines and those of the schools is different because UT must subscribe to additional services to most effectively manage the modem pools.
2 Southwestern Offers Fiber Network if Missouri Renews Incentives, State Telephone Regulation Report, October 22, 1992, pp. 7-8; SW Bell Proposes to Extend Missouri Incentive Regulation/Network Upgrade Agreement, Telecommunications Reports, October 12, 1992, p. 33.
3 Interview with Connie Stout, Texas Education Agency, Austin, Texas, November 24, 1992; and interview with Allison Thompson, Office of Telecommunications Services, University of Texas System, Austin, Texas, November 30, 1992.