Taxpayers Not Keen To Fund Broadband Subsidies

A poll of American taxpayers found little support for expanding telephone Universal Service subsidies to include Internet broadband. The research, sponsored by a Web-based “grass-roots” organization pushing for reform of the Universal Service Fund, reports that 62 percent of those polled oppose a broadband build-out push funded by the USF.

The key focus of the organization, the Cap The Fund Campaign, is placing a limit on the subsidies to rural wireless telecommunication providers under the “high cost” portion of the USF. In 2006, the “high cost” portion of the USF tax brought in $4 billion, up from $2.2 billion in 1998.

“The high-cost portion of the Universal Service Fund is now a seemingly bottomless pit of tax subsidy handouts that do little or nothing to help the consumers originally targeted for aid,” said Dee Hodges, president of the Maryland Taxpayers Association. “Experts say we could meet the mission of the USF and save billions in the process. In terms of transparency of government, [the USF is] completely out of whack. Many privately held rural telephone companies don’t have to disclose much about how much money they get or how they choose to spend it.”

The “high cost” portion of the USF tax, paid by consumers as part of their phone bill, is intended to provide phone service to customers in rural areas that might not otherwise get such service. The money is paid out in subsidies to companies providing service to rural areas, funding the construction of cellular towers and other infrastructure in areas where the population is sparse or the terrain might otherwise make construction too expensive.

The USF has been drawing greater attention from advocacy groups because of what they have seen as the abuses of the program. In October, the FCC’s Office of Inspector General for the USF discovered a high percentage of “erroneous payments” made under the USF program. In a review of over 450 of USF payments, the OIG concluded that almost 17 percent of payments under the high-cost program were for the wrong amount.

“The high-cost portion of the USF is the king of tax waste,” said Mac Hadow, chairman policy advisory council for the Seniors Coalition. He pointed to the subsidies of “more than $13,000 per telephone line” that were being made to for phone lines going into the Hawaii resort community of Maui as evidence of how the USF was not being used to fulfill its true mission.

Subsidies to landline telecommunications companies have been capped for over 10 years. Six months ago, the State-Federal Joint Board on Universal Service, which oversees the fund, proposed a temporary cap on how much rural wireless providers, or “competitive eligible telecommunications carriers” (CETCs) can receive in subsidies. However, the FCC has yet to act on the proposal.

“Very few folks dispute that [funding to] CETCs has grown at an alarming rate,” said Drew Petersen, the director legislative and public relations for TDS Telecom, a telecommunications company based in Madison, Wisconsin, in reaction to the survey. “It’s been almost 100 percent year over year since 2002, and it’s increased the Universal Service Fund by upwards of a billion dollars in 2006. This particular financial issue aside, I think most industry observers would say that Universal Service is one of the most fundamentally successful public policy programs this country has had, in terms of telecom services.”

The Cap The Fund campaign, launched on September 27 by the Seniors Coalition and the Maryland Taxpayers Association, has thus far generated over 225,000 e-mails to Congress, the FCC, and the USF State-Federal Joint Board advocating the proposed reform, and commissioned the research by Opinion Research Corporation.

“The survey findings make it clear that Americans see a need to rein in perceived excesses in the Universal Service Fund,” said Graham Hueber, senior researcher at Opinion Research Corporation, in a teleconference on the research. “But there are more to these findings than just a rear-view mirror view about the need to clean up an existing problem. The public also comes down very strongly with no prompting whatsoever against the use of federal phone bill taxes to build-out rural broadband.”

The survey comes as an effort to reform the USF through FCC regulation changes and legislation in Congress seems to be stalling. The Universal Service Reform Act of 2007, a bill sponsored by Rep. Fred Boucher [D-VA] and Rep. Lee Terry (R-Neb.), would expand the definition of services subsidized by the USF to include broadband Internet services.

“The failure to act on Universal Service Fund reform will result in millions of Americans losing access to telecommunication services including broadband,” wrote Terry, in an article in the Congressional newspaper The Hill.

“A recent study by Keybridge Research…found that eliminating the High-Cost Program within the Universal Service Fund would put more than 7.1 million Americans at risk of losing affordable telephone service. What is more alarming about the study is that the entire telecommunications network would be at risk if the Universal Service Fund is not reformed,” he added.

“I think everybody who has benefited from the good public policy of Universal Service would like to bring financial accountability to the USF going forward,” said Petersen, “so it can continued to be utilized for network infrastructure to ensure that everyone in this country has affordable access to telecommunications services. I think it’s difficult to answer the question of whether to expand (the fund to) to include broadband until such time as there’s financial reform to the existing service fund.”

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