FCC votes to end telephone subsidies, shift to broadband

IDG News Service - The U.S. Federal Communications Commission has voted to overhaul a decades-old system of telephone subsidies in rural areas, with the funding refocused on broadband deployment.

The FCC's vote Thursday would transition the Universal Service Fund's (USF's) high-cost program, now subsidizing voice service, to a new Connect America Fund focused on broadband deployment to areas that don't yet have service. The FCC will cap the broadband fund at $4.5 billion a year, the current budget of the USF high-cost program, funded by a tax on telephone bills.

Commissioners called the vote "historic." Commissioners and U.S. lawmakers have complained for years that the USF, established in 1997, is broken, inefficient and discourages investment in new technology. The vote will bring an end to telephone subsidies from the U.S. government that began in 1934, said Commissioner Robert McDowell.

The FCC's vote is a "dramatic departure from a nearly century-old policy of opaquely subsidizing analog, circuit-switched voice communications," said McDowell, the lone Republican on the four-member panel.

Over the next six years, the new broadband fund will bring broadband service to about 7 million of the 18 million U.S. residents who don't have it, the FCC estimated. The fund will create about 500,000 new U.S. jobs over six years, as broadband providers expand service, the agency said.

"This is a once-in-a-generation overhaul of universal service," said FCC Chairman Julius Genachowski. "[The revamped program] will create jobs in the near term, and lay the foundation for enduring job creation, economic growth, and U.S. global competitiveness for years to come."

The fund will transition from voice to broadband subsidies starting in 2012, with $300 million going toward broadband deployment. A yet-to-be-determined competitive bidding process would award additional money for wired broadband deployments starting in 2013, the FCC said.

A mobility fund, targeting mobile broadband deployment, will also spend $300 million in 2012, with reverse auctions scheduled to start in the third quarter of next year. The mobility fund will have an annual budget of $500 million starting in 2013, the FCC said.

The changes will cost U.S. residents paying less than $30 a month for telephone service an additional $0.10 to $0.15 a month, but those charges will begin to decline after six years, the FCC said. The FCC's vote Thursday did not make major changes to the way USF is paid for, and McDowell called on the commission to revamp the payment structure, a tax on long-distance voice service, soon.

Several groups praised the FCC for the USF overhaul. The vote will allow millions of U.S. residents to see the economic, health and educational benefits of broadband, said Rick Boucher, a former congressman and a longtime proponent of changes to the USF. "The FCC's unprecedented efforts to reform the outdated and antiquated federal Universal Service Fund are critical to ensuring that broadband reaches underserved and rural communities across the nation," Boucher, honorary chairman of the Internet Innovation Alliance, said in a statement.