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FCC Passes Reform to $8 Billion Phone Fund FCC Passes Reform to $8 Billion Phone Fund

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FCC Passes Reform to $8 Billion Phone Fund


FCC Chairman Julius Genachowski has proposed switching a rural phone subsidy to pay for broadband(AP Photo/Jacquelyn Martin)

CORRECTION: The original version of this report gave the incorrect amount for the mobility fund. It is $500 million.

The Federal Communications Commission voted unanimously on Thursday to overhaul an $8 billion telecom fund, fixing problems that have dogged phone regulation for years and migrating subsidies to pay for broadband rather than traditional phone service.


Policymakers have called for changes to the Universal Service Fund for at least a decade, but reform attempts have repeatedly died because of the difficult politics surrounding subsidies that provide a revenue stream worth billions of dollars for the phone industry each year.

FCC Chairman Julius Genachowski emphasized that the effort is a major step toward universal broadband service, promising to bring Internet service to 7 million Americans over the next six years.

“This is a once-in-a-generation overhaul of the Universal Service, keeping faith with our nation’s long commitment to connecting all Americans to communications service,” he said.


The order will swap subsidies for traditional phone service to pay for broadband in rural areas by transforming a $4.5 billion section of the fund into a new “Connect America Fund."  

The order will also devote $500 million per year to mobile broadband in areas that aren’t covered through a new “mobility fund,” cap the uncontrolled growth of the fund with new budget provisions, and overhaul the system of payments between phone carriers -- a byzantine set of rules created in the 1980s.   

Those are drastic changes to a system that brought voice service to the countryside but is now rife with inefficiencies, pouring billions of dollars a year to sustain a technology—traditional phone service—that is becoming increasingly obsolete as communications move online.

Passing the overhaul looked uncertain only months ago amid aggressive lobbying by the phone and cable industries, which wanted to increase their cut of the new broadband funding, and from rural phone companies that feared losing an essential revenue stream. Letters flooded the FCC from lawmakers worried about local interests and from state regulators who feared that the overhaul would diminish their power over the phone industry.


Lobbying coalesced around the question of how much the FCC would pull from a reform proposal by AT&T, Verizon, and other phone companies, which staged an aggressive campaign to push their proposals at the commission and on Capitol Hill. At least one leading consumer advocate praised Genachowski for avoiding the temptation to adopt the phone proposal wholesale. 

The FCC "deserves kudos for keeping the public interest in mind in tackling the complex problem of [reform],” said Mark Cooper, director of research at the Consumer Federation of America, in a statement. The agency “rejected the totally self-service industry proposal” when it adopted its new plan, he said.

The commission has put off overhauling the fund for years in part because it is such a fractious issue for industry. It “cast a shadow over the FCC for nearly a decade,” GOP Commissioner Robert McDowell said at Thursday's meeting. 

“A lot of folks thought that we couldn’t get here today,” Democratic Commissioner Michael Copps said in a speech before Thursday’s vote. “Yet here we are this morning making telecommunications history.” McDowell called the overhaul “truly monumental.”

The work to overhaul USF is hardly complete. The reform effort addresses only the fund’s mechanism for distributing funds—who gets the money—but does not change how the fund collects money, which policymakers say also needs reform.

That's because the fund has a diminishing number of contributors. Consumers pay into the fund in a line item on their monthly telephone bills, but many customers have stopped buying traditional phone service and are moving to Internet calling services such as Skype or to wireless phones. Contribution reform could broaden the number of contributors and simplify the collection of fees. 

The FCC commissioners celebrated the vote but acknowledged that it's just a start. Copps lamented that the contribution system was not part of the overhaul. “I would have preferred to see such an item in front of us today,” he said. McDowell called for contribution reform in the first half of next year.

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