* Cable industry says phone companies' plan falls short
* Phone cos hope cable cos won't slow reform
By Jasmin Melvin
WASHINGTON, Aug 24 (Reuters) - U.S. cable companies are warning regulators about a plan that would give traditional phone companies a first bite at government subsidies to build out broadband in underserved areas.
The Federal Communications Commission is seeking industry input on plans to revamp a government subsidy program that would help deploy high-speed Internet service to millions of Americans living in rural and costly-to-serve areas.
The plans would modernize the "universal service fund" by shifting its focus to broadband service from phone lines.
Phone companies weighed in last month with their blueprint that would start redirecting the fund beginning in 2012.
The National Cable and Telecommunications Association and the American Cable Association said in a letter to the FCC this week that the phone industry's proposal falls short.
It fails to constrain costs, gives an unfair advantage to incumbent phone companies, and deprives consumers of potentially superior service, the cable groups said in the letter.
NCTA serves as the chief lobbying arm of the cable industry representing networks and operators like Comcast Corp (CMCSA.O) and Time Warner Cable TWC.N, while ACA represents independent companies providing broadband service to 7.6 million subscribers.
Of particular concern to the cable groups was a provision of the plan that gives incumbent carriers first dibs at monies from the fund.
"Support should be awarded to the most efficient provider in a supported area, not simply the one that has been there the longest," the groups said in the letter.
The cable industry called for "no artificial advantage associated with incumbency and no disadvantage associated with using a particular technology."
More than 20 million Americans are without access to high-speed Internet.
The phone companies' plan -- backed by Verizon Communications (VZ.N), AT&T Inc (T.N), Frontier Communications Corp FTR.N, CenturyLink Inc (CTL.N), FairPoint Communications Inc FRP.O and Windstream Corp (WIN.O) -- would support fixed and mobile broadband, and complete the transition of the universal fund to a broadband focus in 2016.
"The commission should not let its reform efforts once again be stymied by groups that are more dedicated to protecting their individual interests, rather than working constructively toward a realistic solution," David Fish, spokesman for the six phone companies, said in a statement.
The current patchwork of programs in the FCC's fund is paid for by fees added to consumers' telephone bills and annually provides $4.5 billion from the overall $8 billion fund to subsidize telephone service in areas otherwise deemed too costly to serve.
The wasteful spending and inefficiencies present in the program have allowed some telecom providers to receive subsidies in areas where competition exists -- at odds with the program's purpose of helping consumers in areas where it is not economically feasible to offer service.
The cable groups said long overdue reforms of the program should include a cap on the size of the fund and a stringent adherence to this budget.
Any proposal needs to better ensure that funding for the buildout of broadband networks is concentrated in areas where it does not make economic sense for private investment, NCTA said in a filing with the FCC. (Reporting by Jasmin Melvin; Editing by Tim Dobbyn)