FCC's Genachowski under pressure on reform of $8 billion phone fund

When the Federal Communications Commission (FCC) indicated it would act this year to reform the $8 billion fund used to boost rural telecom access, the reaction was almost universally positive.

Most observers say shifting the focus of the Universal Service Fund (USF) from subsidizing landline phone service to broadband Internet access is long overdue and reflects the changing needs of rural consumers. The FCC estimates suggest 18 million Americans live in areas without access to broadband.

But scrutiny of the issue has ratcheted up significantly now that the commission is poised to vote in two weeks on its closely guarded plan. 

Questions abound about the cost of FCC Chairman Julius Genachowski's plan and whether it will remain technology-neutral, in part because he has yet to release a detailed draft.

Several members of the Senate Commerce Committee voiced concern at a hearing on Wednesday about the rising cost of the USF, which is funded by a monthly fee on consumer phone bills. Several lawmakers from both the House and the Senate have suggested the high-cost portion of the fund should be capped at its current level of $4.5 billion.

Chairman Jay Rockefeller (D-W.Va.) and ranking member Kay Bailey Hutchison (R-Texas) both argued that consumers have no appetite for further rate increases, given the economic slowdown.

"I believe that we need to ensure the fund does not keep growing unsustainably," Hutchison said. "Consumers can’t afford the constantly increasing fees, and I hope that we will be able to fully utilize what is there without further raising the rates."

"I know that there are serious questions about the impact of reform on consumer bills. Consumers need to get more value for what they pay for — not less," added Rockefeller.

Consumers Union policy counsel Parul Desai said her organization is also focused on ensuring the changes don't result in rate increases and include strong accountability measures for broadband providers.

Desai said she hasn't seen the FCC's final plan yet but that the America's Broadband Connectivity (ABC) Plan rolled out by six major telecom providers this summer would allow for rate increases. Many observers believe the FCC's final proposal will borrow heavily from the ABC Plan, which has been criticized for heavily favoring incumbent telecom providers over alternatives such as wireless broadband or cable companies.

But detaching one aspect of the plan from the larger package for debate is difficult, according to experts, because reforms to the fund must be accompanied by an overhaul of the complex intercarrier compensation system, which governs how much telecom providers must pay to carry each other's traffic. Desai said those changes are expected to lower phone rates for consumers.

The FCC must strike a delicate balance of expanding broadband coverage while eliminating the aspects of the program labeled "wasteful" and "unfair" by Genachowski last week. Any provision that indicates a potential increase in the monthly fees paid by consumers is likely to draw fire from public interest groups, while a failure to control costs will inevitably spark concern from lawmakers.

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