Lost billions demand regulatory reform

By Dr. Vera McIntyre | Aug 18, 2007

Most people get no further than reading a headline about regulatory matters – particularly when the topic deals with the intricacies of technology, communications and an alphabet soup of acronyms.

If readers realized that these regulatory matters hit them every month in their pocketbooks-to the tune of billions of dollars-they might pay more attention.

The sad truth is that this is a story of acronyms (I'll try to limit it to just one) and what seem to be arcane regulations to most people. But bear with me a minute and I'll make you glad you didn't just move on to the next story after reading this headline.

Right now, the Federal Communications Commission is considering changing a fund to which virtually every household and business contributes. It's called the Universal Service Fund – USF for short – and it's one of those lines of taxes and fees on your phone bill.

The money is used to bring phone and Internet lines to schools and libraries, but mostly it is used to bring phone service to rural areas where the cost of providing the service is high.

The problem is that the rules for using it are different for different companies. Most funds available to traditional phone companies, who string wires along country roads and through the mountains, for example, are capped.

But funds for wireless companies are not capped, and these companies have fewer rules governing how they can obtain and use the money.

When the rules were written in the mid 1990s as Congress passed the Telecommunications Act of 1996, no one realized the impact that wireless (cellular) communications would have. So it is no surprise that rules written more than a decade ago need revisiting now.

The fact is that, in large part because wireless companies have realized the USF is virtually unlimited for them, payments from the fund have grown from $1 million in 2000 to $1 billion in 2006. The FCC estimates payments to wireless companies could reach $2.5 billion by 2009.

This is where you should really be interested in this story. Remember, that $2.5 billion comes from those little USF charges on your phone bill. Just think how much we could save if the payments were capped and the use of the funds scrutinized.

But, you might be thinking, this money is well spent because it brings wireless service to rural areas.

The truth is that wireless carriers receiving USF subsidies are covering only 70 percent of their population, while carriers that aren't receiving subsidies are covering 97 percent of theirs, according to reports by Criterion Economics.

That's right – this money is going out but it isn't really helping expand service. In fact, most of the USF subsidies to wireless carriers go to areas where wireless service already exists.

Even worse for the people of Illinois, virtually no USF funds are disbursed in our state, despite the fact that Illinois consumers pay millions of dollars into the fund.

It's obvious this system is in serious need of reform. The FCC should follow the recommendation of the Federal-State Joint Board on Universal Service and put an interim cap on the portion of the fund that goes mainly to wireless companies, just like other portions of the USF are capped. It's not only fair; it's good economics.

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