FCC chairman proposes changes to subsidy program

The Federal Communications Commission is planning to overhaul the $8 billion phone subsidy program to include funding for broadband in underserved communities.

The FCC is expected to vote on an order tomorrow that will open comments for revising the Universal Service Fund, or USF. In a speech today at the Information Technology & Innovation Foundation in Washington, D.C., FCC Chairman Julius Genachowski outlined his proposal for revising the fund. And he talked about the importance of taking action to reform USF now.

"While the world has changed around it, USF--in too many ways--has stood still, and even moved backwards," Genachowski said. "The program is still designed to support traditional telephone service. It's a 20th century program poorly suited for the challenges of a 21st century world. Where USF has changed over the years, it's too often changed for the worse."

He continued that well-intentioned policies have been put in place over the years that have weighed down the program. And he suggests revamping the USF to make it more efficient in providing services to rural communities. He also suggested revising inter-carrier compensation, a system by which carriers charge each other for accessing portions of each other's networks.

"In its current state, the program is not getting the job done," he said. "It's leaving millions on the outside looking in, and wasting taxpayer dollars every year. That's unacceptable. We need to be responsible fiscal stewards, to get the most bang for our USF buck. Particularly in light of its inefficiencies, we need to control the costs of USF."

The USF, which has been used to help pay for traditional phone service in rural communities and Internet access to schools and libraries, has grown from a $2.3 billion fund in 1998 to nearly $8 billion in 2010. The program is funded by fees that long-distance telephone providers charge to consumers.

Genachowski's plan calls for phasing out the support of regular phone lines over the next several years and instead have it fund broadband deployments in rural areas and underserved communities.

Congressional leaders, telephone companies, and consumer groups have long supported the idea of revising the program. But getting wide support for specific proposals has been difficult as companies that might lose funding when the program is revised have fought it.

The FCC discussed broad proposals for overhauling the USF program in the National Broadband Plan, which was released last year. The FCC's action tomorrow will open a formal proceeding to get public comment on ways to reform the program, including suggestions for changing the formula for how the program is funded. The agency is not expected to take specific action to change the USF until later this year.