Subsidy for rural phone service is up for changes, including cuts and first help for broadband

The Federal Communications Commission is seeking ideas for changes in the fund that subsidizes rural telephone services, because its cost is rising as rural wireless companies expand service and get subsidies, reports Amy Schatz of The Wall Street Journal.

"One proposed change calls for using a reverse-auction system to pick which phone companies receive multimillion-dollar payments for providing phone service in rural areas," Schatz writes. Another plan would cut the money wireless companies get to offer rural service, and the FCC will for the first time examine "whether money should be set aside to subsidize broadband Internet lines."

The Universal Service Fund is financed by a tax on telephone services, usually labeled "federal universal service charge." Schatz reports, "The program's budget ballooned to about $7 billion last year from $5.2 billion in 2002 as more companies sought to tap the federal revenue stream. ... If something isn't done to restrain the fund's growth, FCC officials warn, consumers will continue to see the USF fee on their phone bills continue to rise."

The Federal-State Joint Board on Universal Service, which monitors the program, says payments to rural wireless companies "rose to nearly $1 billion in 2006 from $15 million five years earlier," Schatz reports. Because the subsidy is based on the costs of providing local landline service, "wireless companies have been receiving something of a windfall. ... The FCC is proposing to close that loophole in the program and reimburse wireless companies based on their actual costs of providing service." (Read more)