US proposes moving phone subsidy focus to Internet

Tue Feb 8, 2011 2:35pm EST

* Regulators propose changes in universal service fund

* Want fund to help bring broadband to unserved areas

* Plan gives phone companies time to adapt to transition

By Jasmin Melvin

WASHINGTON, Feb 8 (Reuters) - U.S. communications regulators proposed new rules on Tuesday that they say will help bring broadband to all of rural America.

The rules would shift government subsidies for landline telephone service to fund the buildout of high-speed Internet services in rural areas.

"We won't fully realize the promise of broadband and the fundamental promise of American opportunity if large swaths of our country are left out," Federal Communications Commission Chairman Julius Genachowski said at an open meeting of the agency.

Some 24 million Americans live in areas not served by broadband service, but a modernized, streamlined universal service program could begin to bridge these gaps in infrastructure, Genachowski said.

Revamping the $8 billion universal service fund -- paid for through fees added to consumers' telephone bills to subsidize landline phone service for low-income and rural families -- is intended to spur infrastructure investment while cutting waste and inefficiency, the agency said.

The proposed rules would transition the largest program within the universal service fund, a program that subsidizes telephone service in rural and other high-cost areas, to directly support fixed and mobile broadband.

The FCC plans to ensure phone service is not interrupted. Voice service would be one application that consumers could use over their fixed or mobile broadband connections.

While some rural telephone companies have deployed broadband-capable lines with the help of this subsidy, many rural areas still have insufficient access to broadband, creating a rural-rural divide, an attorney adviser within the agency said during the meeting.

"The program isn't getting the job done, and it's not on a track to get the job done," Genachowski said. "It's leaving millions on the outside looking in, wasting taxpayer dollars every year and growing in an unconstrained manner. That's unacceptable."

PROPOSED REFORMS

The FCC's proposal aims to reduce inefficiencies in the program by phasing out funding for duplicative services offered by several phone companies serving the same area.

It would also reform the complex system of payments between carriers called intercarrier compensation. The rules would gradually reduce per-minute intercarrier compensation charges. Too often carriers look to maximize these revenues, which incentivizes maintaining old networks rather than investing in advanced infrastructure.

The proposal would also consolidate all the universal service fund programs that support rural networks into a single Connect America Fund intended to bring high-speed Internet to unserved areas.

"The plan we put forward today also calls for a sensible but certain transition," Genachowski said.

The proposed rules give participating companies time to adapt to the changes.

Genachowski said the initial phase of the transition would use the savings from cutting waste and inefficiency in the current program to fund the Connect America Fund. In the longer-term, the rural phone subsidy would be shifted to the new broadband fund.

The new fund would include spending constraints, increased transparency and oversight, and a predictable transition path to avoid harm to phone companies reliant on the subsidies.

The shift in purpose of the universal service fund was part of the national broadband plan released by the FCC nearly a year ago.

(Reporting by Jasmin Melvin; editing by John Wallace)

((jasmin.melvin@thomsonreuters.com; +1 202 354 5880; Reuters Messaging: jasmin.melvin.thomsonreuters.com@reuters.net))

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