WASHINGTON (AP) - Federal regulators on Thursday agreed to temporarily cap a
growing subsidy program that paid nearly $1.2 billion last year to cell phone
companies that do business in rural areas.
The Federal Communications Commission voted 3-2 along party lines to limit
payments to wireless carriers from the Universal Service Fund, which is
supported by a tax on the phone bills of most Americans. The cap will remain in
place until the commission passes a comprehensive reform package, which is in
the works.
The move is bad news for rural cellular carriers who rely on such payments
for a substantial part of their revenue, but it benefits big telephone companies
like Verizon Communications Inc. and AT&T Inc., whose customers are the largest
contributors to the fund.
AT&T is also a major recipient of such wireless subsidies, but agreed to a
cap as a condition of its acquisition of Dobson Communications Corp. last year.
The top recipient of such subsidies, Alltel Corp., had also agreed to a cap as
part of its buyout by a private investment group.
Regulators hope the decision will slow the increase in fund charges on
telephone bills and keep the program sustainable.
The fund was created by Congress in 1996 as part of an overhaul of the
nation's communications legislation, which says all Americans should have access
to telecommunications services at comparable rates.
To do that, carriers that do business in rural areas and their customers are
subsidized by the fund.
The fund itself is supported by a tax on long-distance and regular
subscriber line charges paid by wireless, Internet and traditional phone
customers. The amount usually adds up to a few dollars per month, per bill,
depending on calling patterns.
FCC Chairman Kevin Martin, who supported the cap along with the commission's
two Republicans, said the move was essential in maintaining the program.
"Today's decision is not an end in itself, but a step on the path towards
comprehensive reform," he said in a statement.
However, both Democratic Commissioners Michael Copps and Jonathan Adelstein
dissented. Copps said the temporary cap is nothing more than an "illusory
Band-Aid" and puts reform on the back-burner.
"The majority's response today, while they will attempt to bill it as an
'interim, emergency cap,' has no sunset period and commits only to completing
comprehensive reform 'as soon as feasible,'" he said in a statement.
The temporary cap will be imposed on a state-by-state basis. Each state's
share will be frozen as of March 31, 2008. While states may continue to approve
new wireless companies to apply for money from the fund, the state's share won't
go up, meaning it is possible some existing carriers will actually see a
reduction in their funding.
The FCC order does contain some exceptions, such as wireless carriers that
serve tribal or Native Alaska regions will not be subject to the cap.
In 2007, the fund paid out $6.95 billion with about two-thirds of the total
going to the so-called "high cost fund" which subsidizes rural phone companies.
Payments to non-wireless rural phone providers have been flat in recent
years, averaging about $3.1 billion annually. But payments to "competitive"
carriers, the overwhelming majority of which are wireless providers, have gone
from about $535,000 in 1999 to $1.2 billion in 2007, according to data from the
Universal Service Administrative Co., a nonprofit group that administers the
fund.
Over the same period, tens of millions of Americans have seen similar
increases of such fees in their phone bills.
The Federal-State Joint Board on Universal Service, which acts as an FCC
advisory board on fund issues, recommended a year ago that a temporary cap be
put in place. The board said the fund was "in dire jeopardy of becoming
unsustainable."
The commission is seeking public input on certain proposed reforms,
including elimination of a rule that pays the same subsidy to wireline and
wireless carriers even if a wireless network is much cheaper to build and
operate. Also, the FCC is considering a "reverse auction" system, which is
favored by Martin, in which subsidies would be awarded to a single low bidder in
a particular area rather than multiple ones.
The agency is also looking at larger changes recommended by the joint board
that would create three separate funds to support broadband, wireless service
and "providers of last resort."
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