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FCC proposes using rural telephone service funds for broadband expansion

The FCC has proposed a rulemaking that would convert the $8 billion fund that subsidizes rural telephone service to one that provides broadband Internet service to rural and underserved areas of the country. The proposal involves the Universal Service Fund, which is paid for through fees added onto phone bills and is distributed among telephone companies to subsidize the high costs of providing service to rural areas.

“The Universal Service Fund (USF), which helped connect rural America to telephone service, fails to effectively and efficiently target support for broadband in rural areas,” the FCC said. “USF has also become wasteful and inefficient in some situations, paying over $20,000 a year, nearly $2000 per month, in support per line for some households, while providing little or no support in other communities that lack broadband.”

The FCC said the system is rooted in outdated distinctions between local/long-distance telephone service and inefficient per-minute charges. Intercarrier compensation, the FCC said, also suffers from loopholes that distort markets and derail investment in advanced IP networks.

The FCC said the change will modernize the USF and intercarrier compensation to support broadband networks to make affordable broadband available to all Americans. It will also accelerate the transition from circuit-switched to IP networks with voice-only capability to one of multimedia applications running over fixed and mobile broadband networks.

In his speech addressing the issue, President Barack Obama also proposed a one-time $5 billion cash infusion (from spectrum auctions) into the FCC USF to subsidize 4G wireless broadband service, $3 billion for wireless R&D and $10.7 billion to create and run an interoperable wireless emergency communications network using D-block spectrum allocated for that purpose.

The current USF and its spending methods are “unsustainable,” said FCC Chairman Julius Genachowski in a speech to the Information Technology and Innovation Foundation, a nonpartisan research institute in Washington. “It was designed for a world with separate local and long-distance telephone companies, a world of traditional landline telephones before cell phones or Skype, a world without the Internet — a world that no longer exists … At the end of this transition, we would no longer subsidize telephone networks; instead, we would support broadband,” which then could be used for phone service, Genachowski said.