Universal service phone fee gets overdue scrutiny
If that universal service charge on your phone bill doesn’t irritate you now, it should once you understand how much of that money is misused.
Fees for the Universal Service Fund add 11 percent to your long distance bill no matter whether you use a land line, wireless or broadband. Even if you use no long distance, the fee is levied against your subscriber line charge, or against a certain percent of your cellular phone bill.
The money supports a variety of programs intended to improve access to communications services, helping reduce costs for rural residents, for example, or to the poor and elderly. Schools benefit, as do rural health facilities.
More than $7 billion in subsidies was distributed to telecommunications carriers last year alone. Although the fund has strong supporters among rural state congressmen, the spending and the rate at which it has increased – almost two-fold since 2000 – prompted a reassessment by the Federal Communications Commission.
Last spring, a $1 billion cap on subsidies to wireless carriers was proposed. And a joint board of FCC members and state regulators last month recommended broader reforms in the way the money has been distributed.
Washington Assistant Attorney General Simon ffitch was a member of that panel, albeit a late entry. He replaced West Virginia’s Billy Jack Gregg, whose term expired Sept. 30.
“I was definitely jumping into an ongoing process,” says ffitch, who represents consumer interests in Washington Utilities and Transportation Commission proceedings.
Ffitch says the joint board looked at demands on the fund, and what was generating the rate increases.
“The size of the assessment on individuals was starting to be seen as unsustainable,” he says. “The fund was on a trajectory to just continue to grow.”
The pressure has been driven, in large part, by rapid expansion of cellular and broadband networks. Though a legitimate use of the universal fund, costs were soaring because companies were using the money to duplicate or overlap services offered by competitors. Some companies were dipping once for new land lines, a second time for cellular and a third for broadband.
Washington residents were net contributors to the universal fund in 2006, paying $148 million in fees and receiving subsidies worth $136 million in return. Idahoans contributed $33 million, but received $60 million in return.
The biggest beneficiaries were Mississippi, which netted $256 million, and Alaska, netting $187 million. Florida contributed a net $330 million – ouch! – New York $210 million.
To get a handle on expenditures, the panel recommended a cap on spending for network expansion, and dividing the money equally among cellular, broadband, and wire line where no other carrier is available. Each type of service would be allotted $1.5 billion per year for construction and service subsidies.
One of the most appealing recommendations has to do with the transfer to individual states of some decisionmaking regarding allocation of the broadband and cellular funds because they have better knowledge of their networks. Imagine, an acknowledgement in D.C. that the states know best.
They would also be empowered to use reverse auctions, in which the low bidder wins, to determine who gets the money.
Congress, meanwhile, also is looking at reforms. The United States has some catching up to do with other nations where broadband reaches a much higher percentage of homes.
The FCC’s five members have several months to consider the reforms recommended by the joint board. This is a call they should answer.
Gregg, ffitch’s predecessor on the panel, calls the present universal fund “a subsidy system without limits.”
“All to the expense of the American telephone user.”