FCC wasting phone subsidy money, study says

The study's numbers are outdated and fail to account for 2011 reforms, the FCC says

The U.S. Federal Communications Commission has wasted hundreds of millions of dollars on telephone subsidies, with some rich areas of the country receiving up to US$23,000 per line per year from the agency's Universal Service Fund, according to a new study.

But the study, sponsored by advocacy group the Alliance for Generational Equity (AGE), is outdated and fails to take into account USF reforms the FCC made in late 2011, an agency spokesman said. In November 2011, the FCC overhauled the USF program and capped the annual per-line subsidy at $3,000, the spokesman noted.

According to AGE's press release, the FCC "wastes up to $24,000 per line a year on phone subsidies."

The FCC, in its 2011 reforms, "took unprecedented steps to end waste, fraud and abuse, while adopting measures to connect millions of currently unserved Americans to broadband," the spokesman said in an email. "[The] reforms protect the businesses and consumers who pay for the program through universal service fees, and free up resources to expand broadband connectivity to all of rural America without growing the size of the universal service fund."

But the $3,000 cap is being phased in and the FCC hasn't released per-line USF statistics past 2010, said Thomas Hazlett, the study's co-author and a law and economics professor at George Mason University. It's unclear if areas in Washington state, Hawaii, Arizona and other states receiving more than $9,000 per line in 2010 have seen significant reductions, he said.

With phone service in the U.S. now typically costing a few hundred dollars a year, a subsidy of "$3,000 a year is still laughable," said Hazlett, also managing director of Arlington Economics and a former chief economist at the FCC.

The FCC's 2011 reform also set a budget for the USF's high-cost phone subsidy program at $4.5 billion a year, even though the program's spending had fallen to $4 billion a year, added study co-author Scott Wallsten, vice president for research at the Technology Policy Institute and senior fellow at the Georgetown University Center for Business and Public Policy.

The result of the program is that poor urban telephone customers are subsidizing rural telephone customers who don't need the subsidy, Wallsten said. The USF high-cost fund is funded through a tax on long-distance phone service, and the tax is 15.8 percent this year.

"We're certainly not trying to say ... that it's anything illegal, because clearly it's not," Wallsten said. "The point is that if part of the objective is some kind of equity measure, which it is, this sort of turns the whole idea of equity on its head."

With 99.9 percent of U.S. residents having mobile telephone service available to them, the USF has "run out of things to subsidize," the study said.

The authors' criticism of the size of the fund fails to recognize the FCC's goal of expanding broadband service to rural areas that don't have it, in addition to supporting voice service, the FCC spokesman said. "We are doing so without growing the fund by cutting back on waste fraud and abuse," he said.

Grant Gross covers technology and telecom policy in the U.S. government for The IDG News Service. Follow Grant on Twitter at GrantGross. Grant's e-mail address is grant_gross@idg.com.

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Tags Scott WallstenThomas HazletttelecommunicationregulationU.S. Federal Communications CommissionTechnology Policy InstitutegovernmentGeorge Mason UniversityGeorgetown University

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Grant Gross

IDG News Service

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