* Genachowski offers plan for modernizing USF
* Cable group says gives phone companies unfair advantage
* Proposal set for agency vote on Oct. 27 (Adds comments from industry and analyst)
WASHINGTON, Oct 6 (Reuters) - The U.S. communications regulator unveiled on Thursday a proposal for achieving universal broadband coverage by the end of the decade.
Some 18 million Americans do not have access to broadband where they live and work despite some $4.5 billion in public money spent each year to subsidize telephone service for rural families.
Federal Communications Commission Chairman Julius Genachowski proposed a strategy for revamping that government subsidy program to help deploy high-speed Internet service to millions of Americans living in rural and costly-to-serve areas.
"The costs of this broadband gap are measured in jobs not created, existing job openings not filled and our nation's competitiveness not advanced," Genachowski said in a speech on Thursday, acknowledging that the current program is broken.
The FCC earlier in the year proposed modernizing the $8 billion universal service fund -- paid for through fees added to consumers' telephone bills -- to spur infrastructure investment while removing inefficiencies in the program.
Genachowski's proposal would gradually move the largest program within the universal service fund, the program that subsidizes telephone service, to directly support fixed and mobile broadband.
His plan would also phase out funding for duplicating services offered by several phone companies serving the same area.
Broadband buildout to unserved areas could begin in early 2012 under the plan, bringing high-speed Internet to hundreds of thousands of homes in the near-term.
"It will help cut the number of Americans bypassed by broadband by up to one half over the following five years, and it will put us on the path to universal broadband by the end of the decade," Genachowski added.
The comprehensive set of reforms will be circulated to the other commissioners on Thursday, and are set for a vote at the FCC's Oct. 27 meeting.
CABLE INDUSTRY NOT HAPPY
Genachowski outlined a new competitive bidding process for securing funds from the program, but the American Cable Association said it bent heavily to incumbent phone companies.
The proposal would quickly move to this bidding process in some areas, but others would not shift until later years.
ACA said this would give incumbent phone carriers first dibs at monies from the fund while other broadband providers, like cable, wait years for the option to competitively bid to receive support in those areas.
"The chairman's plan locks in a sole-source contract worth billions of dollars for over ten years to a handful of incumbent large telecom companies," ACA Chief Executive Matthew Polka said in a statement.
ACA represents independent companies providing broadband service to 7.6 million subscribers.
But Genachowski argued in his speech that "a flash-cut to competitive bidding in some parts of the decades-old program risks consumer disruption, build-out delays, and other unintended consequences."
In order to push reform through, certain policy and political trade-offs must be made, and that may limit cable companies' prospects for receiving federal broadband support, said Medley Global Advisors analyst Jeffrey Silva.
"The political sensitivities almost demand that in order to get any sort of consensus that's politically viable, you have to get buy-in by rural telephone companies," Silva said.
"That may be the best this chairman or any chairman is going to be able to do because it's not just about policy, it's about politics," he added. (Reporting by Jasmin Melvin, editing by Bernard Orr)