Bloomberg News

Rural Phone Providers Warn of Higher Prices From Subsidy Cuts

October 12, 2011

Oct. 12 (Bloomberg) -- Rural telephone providers told U.S. lawmakers that proposed changes to a $4.3 billion subsidy for landline service in high-cost regions may increase prices for customers of smaller carriers.

The Federal Communications Commission wants to overhaul the subsidy to fund the expansion of high-speed Internet. Cuts to the program would boost the cost of operating in remote areas and curtail carriers’ investment in their networks, Shirley Bloomfield, chief executive officer of the National Telecommunications Cooperative Association, said today during a hearing of the Senate Commerce committee.

“These areas are served by small rate-of-return-regulated providers precisely because no one else could justify a business case to serve there,” said Bloomfield, whose organization represents more than 570 small phone providers nationwide.

The changes to the high-cost program, which is part of a broader subsidy known as the Universal Service Fund, were proposed Oct. 6 by FCC Chairman Julius Genachowski, who favors expanding access to broadband as a vehicle for economic growth and job creation. The proposal will be brought before the agency’s four commissioners at an Oct. 27 FCC meeting.

“Our plan to accelerate broadband build-out -- wired and wireless -- to unserved homes, businesses and anchor institutions in rural America,” would put the U.S. “on the path to universal broadband access and bring massive consumer benefits,” Genachowski said in a speech to the Pew Charitable Trust today in Washington.

‘Connect America Fund’

The FCC wants to transform the Universal Service Fund into a “Connect America Fund” designed to ensure affordable high- speed Internet in regions that lack access and to promote mobile broadband nationwide. Details of the proposal have yet to be released by the agency.

The USF supports phone service to schools, libraries, the poor and high-cost areas. The fund is financed by charges on long-distance calls paid by telephone subscribers, and it subsidizes companies including Windstream Corp. and Frontier Communications Corp.

In 2010, the program paid $4.3 billion to carriers doing business in high-cost areas, according to the website of the Universal Service Administrative Company, a Washington-based independent nonprofit group that administers the fund. More than 1,700 carriers receive support from the high-cost program.

“Reform almost always means that some vested stakeholders will be unhappy because they prefer the status quo,” Senator Jay Rockefeller, a West Virginia Democrat and Commerce Committee Chairman, said in a statement. “There are serious questions about the impact of reform on consumer bills.  Consumers need to get more value for what they pay for -- not less.”

Connection Fees

A coalition of telephone companies led by AT&T Inc. and Verizon Communications Inc. asked the FCC in July to reduce the fees they pay to have calls connected by smaller rural carriers. The changes were part of a bundle of suggestions for revising programs designed to promote phone service.

The plan presented by AT&T and Verizon, which Frontier Communications also signed, meets the goals of “supporting deployment and operation of broadband service,” while “maintaining the size” of the subsidy, Kathleen Abernathy, executive vice president of regulatory affairs for Frontier and a former FCC commissioner, said in prepared testimony.

--With assistance from Todd Shields in Washington. Editors: Michael Shepard, Allan Holmes

To contact the reporter on this story: Juliann Francis in Washington at jfrancis31@bloomberg.net

To contact the editor responsible for this story: Michael Shepard at mshepard7@bloomberg.net


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