Supporters of the subsidy program are worried that increased competition in telephone markets will leave rural areas stranded, since they are more expensive to serve and offer less return than high-profit business centers.
The Federal Communications Commission will have to decide how to protect these areas when it rules on overhauling the program next spring. A joint federal-state panel of advisors recommended today that funding for the program be increased slightly, and that some states take over greater responsibility for the subsidies.
The program is currently funded by surcharges on long distance telephone bills. Long distance companies, such as AT&T or Sprint, funnel these dollars to the local telcos--primarily the baby Bells and GTE--who serve rural and low-income areas, ensuring that phone service is available in these regions.
The federal program pays for about 25 percent of the cost of the subsidies. The rest is picked up by the states.
The federal advisory panel recommended changing this structure slightly. Long distance companies should be assessed fees based on their total revenue, rather than simply their interstate calls fees, the board said. This would put the growing sector of Internet and data services into the funding mix. The companies also should be barred from marking these charges as a new tax or mandatory fee on consumers' bills, panel members said.
States that have a higher proportion of rural areas should be encouraged to pick up a higher proportion of their residents' subsidies, the board said. But they also recommended that the amount of federal money going to each state stay at least at its current level.
The federal program now sends about $250 million yearly to the local phone companies to help pay for rural service. The companies are also forced by regulators to use profits from other customers to help subsidize low-income callers.
Local phone companies, which administer the program for their rural users, said they were optimistic about the advisory board's recommendations.
"The challenge now is to move beyond talking to actually delivering on the promise of helping rural customers," said Solomon D. Trujillo, president and CEO of US West, in a statement following the board's recommendation.
Regulators have recently cut other access charges levied on long distance companies that help support rural customers, Trujillo said. Meanwhile, competition for businesses local phone service has eaten away at the local phone company's margins, he added.
"Regulators have already begun eliminating many sources of rural support," Trujillo said. "That's why the FCC must move quickly to ensure that rural communities continue to have access to affordable phone service, as well as the latest in new information technologies."
The Universal Service program also includes funds for rural health care and Internet access for schools and libraries. The Net portion came under political fire last summer, after GOP members of Congress criticized the way the FCC was administering the program, dubbing it the "Gore tax."