Feds cap rural cell phone subsidies

FCC puts a cap on a fund that pays rural wireless companies to provide coverage in remote parts of the country in an effort to ease the tax burden on consumers.

Marguerite Reardon Former senior reporter
Marguerite Reardon started as a CNET News reporter in 2004, covering cellphone services, broadband, citywide Wi-Fi, the Net neutrality debate and the consolidation of the phone companies.
Marguerite Reardon
3 min read

The Federal Communications Commission capped a subsidy program that helps fund cell phone coverage in rural areas.

In a 3-2 vote on Thursday, the FCC said it would limit payments to wireless carriers seeking funds from the Universal Service Fund to help subsidize the cost of providing cell phone service in rural areas. The USF, which is supported by a tax on long-distance and regular subscriber line charges paid by wireless, Internet, and traditional phone customers, has been temporarily capped after the program paid nearly $1.12 billion last year to phone companies operating in rural areas. In 2001, the fund paid out only $15 million. The increase in funding has led to higher taxes on phone bills for consumers.

Congress is currently working on reforming the USF. And the cap ensures that rates remain at March 2008 levels until the reform package is complete.

Regulators hope capping the fund now will help slow the increase of charges being added to consumers' phone bills. The fund was created by Congress as part of the Telecommunications Act of 1996, which essentially overhauled telecommunication law and regulations. The purpose of the fund was to ensure that all Americans had access to telecommunications services at comparable rates.

But in order to achieve this goal, funds had to be made available to subsidize service in rural parts of the country.

In many ways, the USF has been a great success. Over 80 percent of the U.S. population subscribes to a cell phone service. But there are still significant gaps in coverage, where service is not available, because it is simply too expensive for operators to put up cell towers.

While only a quarter of the U.S. population lives in a rural area, roughly 75 percent of our country's geography is rural. And the mobile nature of cell phones means that improving rural cell phone coverage is not just important for people living in remote areas of the country, but for anyone traveling through those areas as well. There have been many stories over the past several years where people have gotten lost or stranded in remote parts of the country and were not able to get help because their cell phones couldn't get a signal.

Still, regulators and large phone companies complain that the burden to fund USF has gotten too great as too many consumers have seen dramatic increases in fees tacked onto their cell phone bills. And they say that the money is not always spent on carriers that are in the most need of subsidy. Phone companies such Verizon Communications, whose customers contribute to the bulk of the fund, were pleased to see the cap in place.

"Consumers will be happy to hear the FCC is taking control of the fund's growth," Tom Tauke, Verizon's executive vice president of public affairs, said in a statement. "This is a responsible first step. The next step is comprehensive reform of the universal service high-cost fund to make it more efficient and targeted to consumers who need it."

While AT&T's customers, like Verizon's subscribers, pay a huge chunk of the USF, it also happens to be a major recipient of these wireless subsidies, according to a story by the Associated Press. But the company had already agreed to a cap as a condition of its acquisition of Dobson Communications last year. Alltel, another major wireless operator that relies on USF funds, also agreed to a cap on the fund as a condition of its deal to be bought out by a private investment group.