FCC chairman pushes reform of 'wasteful' and 'unfair' phone subsidy

Federal Communications Commission Chairman Julius Genachowski announced his plan to reform a phone subsidy program Thursday, calling the current system "outdated," "wasteful" and "unfair."

The Universal Service Fund (USF) is an $8 billion program originally designed to subsidize landline phone access in rural areas. Genachowski's plan would transition the fund to focus on expanding high-speed Internet access and would rename it the "Connect America Fund."

The program is funded through monthly charges on consumer phone bills.

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USF currently pays some companies almost $2,000 a month to provide phone access to a single home, Genachowski said. The program also subsidizes companies even when there is a competing provider in the area, indicating that government support is unnecessary.

"USF worked in the 20th century. But the program isn't working for the 21st," he said.

Genachowski said updating the fund to focus on broadband would expand economic opportunities and create jobs.

"Broadband has gone from being a luxury to a necessity for full participation in our economy and society," he said.

The FCC estimates that 18 million Americans live in areas without access to broadband. Genachowski said his plan would cut that figure in half within five years.

His program would also introduce a Mobility Fund that would extend wireless broadband access to more than 100,000 road miles.

It is unclear how similar Genachowski's proposal is to America's Broadband Connectivity (ABC) Plan, which was drafted by the major telecom firms.

He said his plan "will not rubber stamp or adopt wholesale the proposals of any stakeholders." He reviewed a variety of suggested proposals and his plan includes elements of many of them, he said.

Unlike the ABC plan, Genachowski's proposal does not eliminate "carrier of last resort" obligations, which require some companies to provide service to anyone who requests it.

The U.S. Telecom Association, an industry trade group that helped draft the ABC plan, applauded Genachowski for focusing on broadband access but said they would continue to push for their proposals.

"While we have some concerns with what he outlined today, we appreciate that he and his fellow commissioners are looking to find the right balance that will benefit consumers, advance the public interest, accelerate broadband investment, and create jobs," U.S. Telecom President and CEO Walter McCormick Jr. said in a statement.

Free Press, a consumer advocacy group, said they hope Genachowski will ignore the industry's plan. 

“We hope that Chairman Genachowski is sincere in his pledge to give the American people something better than the industry's profit-padding wish list," Free Press Policy Director Matt Wood said. "But knowing how doggedly these companies pursue what they want, no matter how much it harms the public, we're going to be vigilant and make sure that the commission abides by that promise."

Genachowski also announced plans Thursday to reform the FCC's intercarrier compensation rules, which govern how much telecom companies must pay to carry each other's traffic. His plan would reduce intercarrier compensation charges over a several-year period.

The FCC is scheduled to vote on both proposals at its next meeting, on Oct. 27.

The chairman did not release a detailed draft of either proposal, but an FCC spokesman said the plans will be sent to the other commissioners later in the day.