FCC Will Vote to Subsidize Internet Access in 'Unserved Areas'

By Matt Cover | February 7, 2011 | 7:08 PM EST

In this file photo made March 12, 2010, FCC Chairman Julius Genachowski is interviewed at his office in Washington. New rules aimed at prohibiting broadband providers from becoming gatekeepers of Internet traffic now have just enough votes to pass the Federal Communications Commission on Tuesday, Dec. 21, 2010. (AP Photo/Jacquelyn Martin, file)

(CNSNews.com) – The Federal Communications Commission (FCC) is set to vote on proposed changes to a decades-old subsidy program that would replace the current telephone subsidies with subsidies for Internet access in "unserved areas."

The changes, proposed by FCC Chairman Julius Genachowski on Monday, would begin replacing the Universal Service Fund (USF) subsidy program with Genachowski’s signature Connect America Fund.

“We would also set the Universal Service Fund on the path to reform by taking existing funding that’s being used inefficiently and without accountability, and transitioning it to the Connect America Fund,” Genachowski said in a speech Monday before the Information Technology and Innovation Foundation.

Genachowski’s plans involve two steps that would ultimately result in converting telephone subsidies entirely into Internet subsidies. The first step in the plan involves changing the way the government distributes USF monies to telecom companies.

“The proposal includes performance goals and reporting requirements to increase the accountability of Universal Service Fund recipients and to better measure the performance of the Fund as a whole,” he said. “So we’ll fund broadband for unserved areas out of savings from existing programs, while constraining the size of the Fund.”

Genachowski’s proposal would also reform the way the USF distributes money by eliminating subsidies in areas where competition among local and national telecom providers exists. The second phase of the plan involves rolling the USF into Genachowski’s Connect America Fund that would subsidize broadband Internet service.

“The second stage of reform would focus on streamlining and consolidating the various existing mechanisms to support networks to rural consumers into a single smart and efficient Connect America Fund,” the FCC chairman said.

“The Connect America Fund would provide ongoing support both to bring advanced high-speed Internet networks to unserved areas and to maintain service where it exists today, creating jobs and fueling economic growth. At the end of this transition, we would no longer subsidize telephone networks; instead we would support broadband,” he said.

For those in the rural areas who benefit from current USF subsidies for telephone service, Genachowski said the government would ensure they can still make calls over Internet-based phone services like Skype.

“As we do this, we will make sure that all Americans continue to have access to voice service and can make calls from their homes,” said Genachowski. “Voice will be one application that consumers can use over their fixed or mobile broadband connections.”

Originally created in 1934, the USF was expanded from long-distance telephone service to all telecom services in 1996, requiring all telecom providers to pay a certain portion of their revenues to the government to further the goal of universal telecom service.

Currently, telecom providers pass this cost to consumers in the form of separate charges on their telephone bills. Genachowski plans to redirect these corporate fees into government spending that supports his broadband adoption goals.

The program, which takes in about $8 billion annually, would then only dole out money to those companies willing to provide high-speed Internet services to very rural areas.

“We would also target funding to those areas that truly need it, where the economics dictate that broadband would not be available without support,” Genachowski explained.

Reforming the USF has been a goal of both Republican and Democratic FCC chairmen, albeit with differing goals in mind. Tuesday’s vote, which would merely set the change process in motion by opening a public comment period, is widely expected to pass at the FCC. From there, the proposal would then be open for public review and comments.