FCC Votes to Remake Multibillion Dollar Subsidy Fund

All five Federal Communications Commissioners agree: The $8 billion fund that subsidizes plain old phone service is so yesterday. Now comes the hard part—working out the details of how to bring it into the 21st century.

In an unanimous vote Tuesday, the FCC officially began what will be a long, multiyear process of remaking the Universal Service Fund and related intercarrier compensation system into the Connect America Fund, which would support high-speed fixed and mobile broadband access, advancing a key goal of the Obama Administration.

Both programs have become a tangled web of fees and subsidies leading to waste and inefficiencies for a communications platform that is fading fast. The proposed rule takes on the largest part of the USF, the more than $4.3 billion subsidy that supports telephone service in rural areas (called the high-cost fund) that is funded by a $1 to $2 charge on consumers’ phone bills.

“Neither program is up to the nation’s broadband challenge,” said Julius Genachowski, chairman of the FCC. “While the world has changed, the importance of universal service has not. We have to streamline and modernize the program.”

The proposal that the FCC put forth concentrates first on cutting waste and inefficiency from the programs to shift funding to support broadband.

Unlike some other recent FCC actions, like its new network neutrality rules, this is relatively uncontroversial, especially since reform is long overdue. The combination of Google, Skype and the advent of “triple play” packages offered by cable companies has turned telephone service into just another app. Yet the fund has continued to grow, going from $2.3 billion in 1998 to nearly $9 billion today, noted FCC Commissioner Meredith Attwell Baker.

“In recent days, the commission has seen a parade of companies (often regulatory adversaries) including Google, AT&T, NCTA, NTCA, Verizon, Sprint and others urge reform of the broken, nontransparent subsidy programs. The fact that such a disparate group of competitors has come together should be a sign that the time for the commission to act is now,” said Bob Quinn, svp, federal regulatory and chief privacy officer for AT&T.

Congressional leaders on both sides of the aisle chimed in with supporting statements, including Rep. Lee Terry, R-Neb., who has worked on legislation to overhaul the USF since 2009, and Sen. Jay Rockefeller, D-W.Va.