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FCC investigates phone, Net subsidy fund

The FCC scrutinizes the Universal Service Fund, which subsidizes phone service in rural areas and Net access at schools and libraries.

The Federal Communications Commission is taking a closer look at a multibillion-dollar program that helps provide affordable phone service in rural areas and fund subsidies to schools and libraries for Internet access.

On Tuesday, the FCC announced it has launched a formal inquiry into the management, administration and oversight into the program known as the Universal Service Fund. Since 1997, the Universal Service Administrative Co., or USAC, which administers the fund, has disbursed approximately $30.3 billion. The fund is gathered through a tax levied on long-distance telephone services.

The fund has come under fire in the past couple of years as several instances of waste, fraud and abuse have been uncovered in one of the USF's main programs, E-rate. E-rate, which was established by the 1996 Telecom Act, provides subsidies for schools and libraries to purchase Internet services and equipment. Congress has held several hearings to investigate the extent of the fraud and abuse in the program.

Last year, the program, which typically distributes about $2.25 billion annually, was halted after it was forced to comply with federal accounting rules. Congress intervened in December to temporarily exempt USAC from those rules.

The inquiry will focus on whether changes need to be made to the management, administration and oversight of the fund. First, it will look for ways to streamline the management and administration of the fund. The commission also plans to examine the effectiveness of the efforts to protect the fund from misuse. Ultimately, the commission will determine if any rule changes need to be made.

The FCC has no immediate plans to look at how the program is funded, a major concern among telephone operators and regulators. The FCC is expected to review how the program is funded at a later date, however.