FCC to Overhaul Phone Fund

On Tuesday, the Federal Communications Commission will start the process of reforming a decades-old, $8 billion subsidy program that ensures everyone in America has telephone service. The program, called the Universal Service Fund, will be renamed the Connect America Fund and will be refocused to support broadband in rural areas, a key goal of the FCC and the Obama administration.
To start, the FCC will concentrate on changing the most expensive part of the USF, the $4.3 billion that supports voice service in rural America. Americans see the monthly charge on their phone bill, passed down to them by the telecom companies that pay a portion of their revenue to the fund.

The FCC is also taking on intercarrier compensation, a complex system of payments that phone companies make to each other, and will aim to solve a number of other problems—including inefficiencies that lead to the fund paying more than $20,000 for some households to have phone service. The USF also allows the fund to pay more to some companies when those companies lose lines.

“It must be fixed, modernized and streamlined for the 21st century,” FCC commissioner Julius Genachowski said of the USF in an address Monday before the Innovation Technology and Innovation Foundation. “In the 21st century, high-speed Internet, not telephone, is our essential communications platform, and Americans are using wired and wireless networks to access it.”

“Up to 24 million Americans couldn’t get broadband today even if they wanted it. The infrastructure simply isn’t there,” Genachowski said.

Reforming and untangling USF and intercarrier compensation will be a five-to-eight-year project for the commission and will affect not only the biggest telecoms (AT&T, Verizon and Qwest), but the regional and smaller telecoms, wireless Internet and cable companies that provide voice or voice-over-Internet phone services.

In general, reform for USF is getting broad bipartisan support from companies.

“Universal Service Reform makes our eyes glaze over,” said Jim Cicconi, senior executive vp of external and legislative affairs for AT&T during a Free State Foundation telecom policy panel on Friday. “If we’re going to get serious about 100 percent broadband penetration, then we have to reform policies that are in the way.”

Congress, however, may have something to say about the FCC’s authority to overhaul the USF without congressional action. In 2009, Rep. Lee Terry, R-Neb. (now vice chair of the Subcommittee on Communications and Technology), and former Rep. Rick Boucher, D.-Va., drafted legislation to allow the USF to be used for broadband deployment.