FCC Wants Existing Phone Subsidies to Go to Broadband

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The U.S. Federal Communications Commission will propose to phase out funding for a US$4.6 billion-a-year program that subsidizes telephone service to rural areas and shift the money to broadband deployment, agency staff members said Friday.

The FCC, in a national broadband plan due out March 17, will propose to eliminate the Universal Service Fund's (USF's) high-cost program over the next 10 years, with the money shifted to a Connect America broadband program, said Blair Levin, executive director of the FCC's Omnibus Broadband Initiative.

"We really believe, and we think Congress believes, that it's time to migrate the 20th-century program ... to a program that helps deliver the broadband networks of the future," Levin said during a press briefing.

The high-cost fund is the largest portion of the USF program, which has a budget of about $8 billion in 2010 and is funded through taxes on interstate and international long-distance revenues collected by telecom carriers. Other USF programs help subsidize phone service for low-income U.S. residents and pay for wiring schools and libraries with telephone and Internet service, and those programs won't be touched by the transition of the high-cost fund to broadband, FCC staffers said.

The FCC's plan wouldn't require additional revenue from Congress to achieve the goal of reaching 99 percent of U.S. households with broadband by 2020, Levin said. However, Congress could speed the transition of USF to broadband with an optional $9 billion allocation over three years, he said.

Even if Congress agrees to fund the extra $9 billion, the FCC's broadband plan will be revenue-neutral, said FCC spokeswoman Jen Howard. Last week, FCC Chairman Julius Genachowski unveiled a plan to spend $12 billion to $16 billion on a nationwide public safety network, but that spending and the optional USF spending would be offset by the sale of wireless spectrum the FCC will identify, Howard said.

Asked if small telecom carriers that get a large chunk of their revenue from the high-cost fund will oppose the FCC's plan, Carol Mattey, a senior policy adviser to the Omnibus Broadband Initiative, said some trade groups representing small carriers have shifted their stance in the past year. "They realize their world is changing, the marketplace is changing, and it's time for them to adapt," she said.

The FCC has had extensive discussions with everyone involved with USF, Levin added. "If this was easy, it would have been done by now," he said.

People in the telecom industry, Congress and the FCC have been talking about USF reform for years. The long-distance funding base for the fund has been dwindling as telecom carriers have moved to unlimited long-distance calling plans and as traditional telephone customers have abandoned service for VoIP (voice over Internet Protocol).

The Organization for the Promotion and Advancement of Small Telecommunications Companies (OPASTCO), a trade group representing small carriers, proposed last year a seven-year transition to broadband funding.

Telecom carrier Qwest Communications International praised the plan, saying USF reform was overdue.

"Qwest supports the establishment of a broadband fund for high-cost areas and the call for an orderly transition from current funding mechanisms," said Steve Davis, Qwest's senior vice president of public policy and government relations, in a statement.

Free Press, a consumer group advocating telecom reform, also praised the plan, but said a lot of difficult details weren't addressed Friday.

"The framework for USF reform and modernization laid out by the broadband plan team today appears to be the very type of ambitious change needed to bring rural America into the digital future," Derek Turner, Free Press' research director, said in a statement. "However, the details matter, and we eagerly await the delivery of the plan as well as the proposed rule changes that will follow."

The plan seems to leave many "thorny" issues to be addressed later, Turner added. "Thus, to turn this plan into reality will require that this chairman and this FCC have the political courage to withstand the onslaught of special interests seeking to ensure that they don't have to shoulder their portion of the pain that all the industry segments must bare in order to make this transition a reality," he said.

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