Telecom carriers oppose proposed subsidy cuts

A Republican proposal would transfer $1 billion from the Universal Service Fund to the U.S. Treasury

In an effort to balance the U.S. government's books, some Republicans have proposed taking US$1billion from a fund that subsidizes rural telephone and broadband service and using it to reduce the government's budget deficit.

Four telecom trade groups and the National Association of Regulatory Utility Commissioners have all come out against the proposal to divert money from the Universal Service Fund since the idea surfaced last week. Representative Eric Cantor, a Virginia Republican and House majority leader, proposed the USF cuts last week in a meeting with fellow Republican House members.

Republicans have been pushing for huge cuts in the U.S. government's budget in exchange for their vote to raise the government's debt limit. Members of President Barack Obama's administration have warned that if lawmakers don't raise the debt ceiling by Aug. 2, the U.S. government will eventually default on its $14.5 trillion debt.

Cuts in the USF would make it difficult for small rural carriers to continue to roll out broadband to their customers, said John Rose, president of the Organization for the Promotion and Advancement of Small Telecommunications Companies (OPASTCO). The proposed cut would redirect nearly a quarter of the USF's $4.5 billion high-cost fund, which subsidizes telephone and broadband service in rural areas.

The proposed cut would "hurt a lot of our companies' ability to serve their customers with broadband," Rose said.

The USF is supported by fees, about 15 percent of a telephone customer's long-distance service. If Congress takes that targeted fee and gives it to the general treasury, "then you're really imposing a totally new tax," Rose said.

The United States Telecom Association, in a letter to congressional leaders sent last week, noted that no federal tax money goes into the USF. The program's efforts to make telephone service ubiquitous "has truly been an American success story," wrote Walter McCormick Jr., president and CEO of USTelecom.

The U.S. Federal Communications Commission, which oversees the USF, proposed in March 2010 to transition a large portion of the fund to a broadband subsidy. For years, several lawmakers have been calling for the USF to be reformed or capped. The fund's yearly budget is about $8 billion.

A diversion of funds would hurt broadband deployment, McCormick wrote.

"Diverting these funds to deficit reduction would constitute, in practical and legal effect, not only the imposition of a new tax on consumers' monthly communications bills, but also a dramatic departure from one of the nation's highest priorities -- the deployment and adoption of broadband service throughout the United States, including rural areas that are hardest and most expensive to reach," he wrote.

Other organizations opposing the USF cuts include the National Telecommunications Cooperative Association and the Western Telecommunications Alliance.

A spokeswoman for Cantor didn't respond to a request for comments. Cantor has previously proposed cutting subsidies for mobile phones from the USF.

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 telephonytelecommunicationJohn RoseWalter McCormick Jr.Organization for the Promotion and Advancement of Small Telecommunications CompanieslegislationNational Association of Regulatory Utility Commissionersbroadband4g3gUnited States Telecom AssociationWestern Telecommunications AllianceEric CantorNational Telecommunications Cooperative Associationgovernment

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Grant Gross

IDG News Service
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