Federal regulators have unveiled a plan for overhauling the $8 billion fund that subsidizes phone service in rural areas and for the poor. It redirects the money toward broadband expansion.
The Federal Communications Commission's plan, adopted Thursday, establishes a new "Connect America Fund" for mobile telephone and broadband in rural communities and needy areas.
The money will continue to come from a surcharge on consumers' and businesses' monthly phone bills. Rates should stay flat or decline for most consumers, FCC officials said. The size of the fund will be capped at $4.5 billion annually. To receive money for network expansions into designated areas, telecommunications companies will be required to enter a bidding competition.
The FCC also approved new rules for the complex system that governs how phone companies pay each other for phone calls.
The changes represent the Obama administration's most significant overhaul of telecommunications regulations.
The administration has identified universal broadband as critical to driving economic development, producing jobs and expanding the reach of cutting-edge medicine and educational opportunities.
Overhaul of the system has been held up for years by competing interests.
The new fund will underwrite the cost of building and operating high-speed Internet networks in places that are too sparsely populated to justify costly corporate investments. It will include a $500 million "mobility fund" earmarked to help build mobile broadband networks in areas where businesses won't invest.
FCC Chairman Julius Genachowski called the action "a momentous step in our efforts to harness the benefits of broadband for every American." It will enhance the U.S. position in a "fiercely competitive" global economy, he said before the 4-0 vote.
The agency estimates that the program will bring high-speed Internet access to about 7 million people living in rural areas over the next six years and will create some 500,000 jobs.
In addition, Genachowski said, changing the system governing how phone companies pay each other for calls will eliminate billions of dollars in "hidden subsidies" in phone bills and put millions back in consumers' pockets.
The current system, virtually everyone in the industry agrees, is outdated and leads to perverse schemes by carriers to stimulate certain kinds of phone traffic.
"I don't expect that overall consumer rates will go up as a result of this" action, Genachowski told reporters after the meeting.
The agency estimates that the curbs on fees the phone companies pay each other will save consumers $2.2 billion a year. That assumes that the companies will pass on a substantial portion of their savings to consumers, FCC staff said.
Some consumers may pay on average an additional 10 to 15 cents a month on their bills, the agency said. No additional charges will be imposed on low-income consumers or anyone whose phone bill is $30 a month or more.
The Universal Service Fund was created to ensure that all Americans have access to a basic telephone line. It assumed its current form in 1996, but the idea of it has been around since the early 20th century. The program subsidizes phone service for the poor and pays for Internet access in schools, libraries and rural health clinics. But more than half the money goes to pay phone companies that provide phone service in rural places where lines are supposedly unprofitable.
Charles McKee, a Sprint vice president for regulatory affairs, said that by curbing the "wasteful traffic-pumping schemes" among carriers, the FCC plan will help foster a robust and efficient market for voice and broadband services.
Public Knowledge, a consumer advocacy group, said it was concerned that the new program "will lead to higher prices at a time when the average American is watching every penny."