Telephone subsidies in an online world

The universal service fund has existed for decades and has helped provide affordable phone service to rural areas, funded with payments by phone companies that show up on each customer's bill. But reforms have been in the works for some time, with some viewing the growth of the Net as evidence the subsidies have outlived their usefulness.

One thorny issue has been whether Internet telephony would be forced to contribute to the universal service fund. Traditional phone companies say it would be unfair if new Internet entrants didn't have to contribute.

The Consumer Energy Council of America (CECA) Universal Service Forum was announced Aug. 29 and will offer recommendations to the next Congress when it convenes in January. "It will be a very balanced effort" including government officials and private-sector representatives with no preset agenda, said CECA vice president Jamie Wimberly.

Rep. Rick Boucher, D-Va., noted in an interview that Internet telephony will reduce use of traditional long-distance services, which means there will be fewer subsidies from those long-distance companies, one of the main contributors to the universal service fund. He said policy- makers will have to craft an approach that preserves funds for universal service even as traditional sources, such as local and long-distance phone services, offer fewer contributions because of movement of traffic to the Internet.

In a thick document prepared by the forum for consideration of its members, numerous questions are posed, including whether new competition such as satellites and wireless phones will make serving rural areas less costly. The bottom line, the report states, is that it must be determined who should contribute to the fund and who should receive its support.

"There's no consensus in sight," Boucher said. He noted that the Federal Communications Commission has had reform of the universal service fund on its agenda since the Telecommunications Act passed in 1996, but "they've made virtually no progress."

"It's critically important that we retain universal service for its traditional application: affordable telephone service," Boucher said. Boucher represents a rural portion of Virginia, but others representing urban areas, such as Rep. Ed Markey, D-Mass., of Boston, have sought to reduce or eliminate subsidies.

But it's not as simple as just deciding who should pay and how much. If an Internet service provider were forced to contribute to the universal service fund based on its Internet telephony traffic, the provider would have to monitor individual use, determining when someone was making an Internet call and when that individual was conducting traditional Internet transactions such as email or Web surfing.

Some in Congress, such as Rep. Christopher Cox, R-Calif., fear this would invade the privacy of people who use the Internet.

Another issue is the so-called digital divide. Boucher said he could support an expansion of what was funded by the universal service fund to include "affordable Internet access for all."

Some members have taken that idea a step further, pushing for affordable high-speed Internet access in rural areas through government intervention.

"The forum is very timely," Wimberly said, noting that in 2001 there will be a new Congress and quite likely new leadership at the FCC, assuming the new administration puts in its own people.

The final report will be released in December.

The forum will be chaired by telecommunications consultant Kathleen Wallman, who previously was the chief of staff of the National Economic Council and the deputy assistant to the president for economic policy. Before her White House service, Wallman was chief of the FCC Common Carrier Bureau.

Included among government officials in the forum are National Telecommunications and Information Administration director Greg Rohde, Commerce Department assistant secretary Chester Straub, Justice Department antitrust division chief of staff Adam Golodner and FCC Cable Bureau chief Deborah Lathen.