Texas PUC investigates Southwestern Bell’s school deals

Texas officials are investigating whether Southwestern Bell has misled school districts while selling long-term deals for high-speed internet access.

Southwestern Bell, a unit of San Antonio-based SBC Corp., has been trying to lock in contracts by telling school districts that if they don’t sign up now, rates could rise next September, when a state law capping school rates expires, the Texas edition of the Wall Street Journal reported Nov. 15.

But Public Utility Commission (PUC) officials say the state Legislature has extended the caps, which allow school districts to pay below-market rates for internet access.

Three commissioners have asked Southwestern Bell how many school districts were told the discounted rates were expiring and which of them signed contract extensions. The contracts could be open to renegotiation, PUC officials said.

Under a 1995 law, Southwestern Bell and other companies agreed to provide high-speed internet connections to schools, libraries, and nonprofit hospitals at a rate capped at 5 percent above cost, in exchange for partial deregulation of the state’s telecommunications markets.

The PUC said the Legislature modified the law in 1999 to keep the discount rates until lawmakers vote to drop them.

But Southwestern Bell believes the 1999 change didn’t override the original expiration date. Spokeswoman Karen Kay Speer declined to elaborate.

In the meantime, Speer said, Southwestern Bell has “taken it upon ourselves” to extend discounts to schools through 2005. She said the company doesn’t know how many schools were contacted or signed deals.

The rate cap provides huge savings to school districts. Randal Douglas, education technology director for a consortium of schools in the suburbs west of Fort Worth, said he asked Southwestern Bell to provide a spreadsheet so he could compare costs.

The numbers, Douglas said, showed the cost of a high-speed internet connection in one rural area would more than triple, from $350 to $1,325 per month, after the cap expired. “There is no way [the schools] can afford to do that,” he said.

In March, a Southwestern Bell accounts director, John Walling, wrote to Dallas school officials, warning them that the 1995 rate-caps law was set to expire next year “and at this point, we are not sure if it will be extended or not.” He urged the district to sign a five-year contract to lock in current rates—adding a penalty for disconnecting services early.

PUC officials fumed when they saw the letter. “Trying to scare people into a five-year term. I mean, that’s not OK,” said Commissioner Judy Walsh.

At an open meeting of the PUC Nov. 1, Walsh expressed concern about the potential effects of Walling’s letter if districts take its contents at face value.

“If there [were] not the benefit of the doubt, or some scintilla of a doubt, I think this clearly violated the provisions about deceptive solicitations,” she said.

“Only in the unlikely event that this company could come forward and prove that [its] costs have gone up, could these rates go up, and even then it would only be able to charge you 105 percent of whatever the cost would be, and they would have to prove it to the Public Utility Commission before they could do that,” she added.

Since 1995, hundreds of school districts in Texas have signed up for the lower-cost internet service allowed under the law and installed high-speed T1 phone lines.

That was a sales boom to telecommunications companies, according to Arnold Viramontes, former executive director of the Telecommunications Infrastructure Fund Board, a state agency that helps schools connect to the internet.

Texas Education Agency spokesman Joey Lozano said his agency has had no prior problems with Southwestern Bell as a service provider, but he added that the agency does not oversee these types of services.

“The districts are responsible for negotiating their own internet contracts,” he said. “Those rates in question were part of the state laws dealing with public utilities and not part of the education code, so we were not involved.”

Public Utility Commission of Texas


Southwestern Bell


Texas Education Agency


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