Will Users or Telecoms Profit From FCC Broadband Expansion Plan?

Consumer advocates listen with skepticism and cautious hope to FCC plan for closing digital divide.

By Jamilah King Feb 08, 2011

On Tuesday the Federal Communication Commission is set to vote on an ambitious plan to pump billions of new dollars into expanding broadband into underserved areas, including many poor and working-class communities of color. The plan is to transform an $8 billion fund that subsidizes rural telephone access into one that helps expand broadband. It’s part of a decade-long effort to connect more Americans to high-speed Internet that has been embroiled in the controversy over whether and how FCC will regulate Web service providers. 

The fund, known as the Universal Service Fund, was established in 1997 to help cover the costs of long-distance telephone service in places where it would otherwise be prohibitively expensive, including in rural and poor schools and libraries. Mandated by Congress, the fund is built on both federal money and fees telephone companies must pay, based on a share of profits, which then subsidize carriers operating in communities where costs of phone lines would be prohibitive.

Now, FCC Chair Julius Genachowski has announced an ambitious plan to revamp the program to help the country meet its national broadband goal of expanding access to 100 million users by 2020.

But the program has been riddled for years. Instead of footing the bill themselves, companies usually pass costs off to customers, whose meaty monthly phone bills end up paying for the subsidized service. It’s also inefficient. The New York Times reported on Monday that in some cases, the fund pays more than $20,000 to subsidize a single household. In other cases, more than four carriers compete to provide service to the same area–a sign that the area could do well without the fund’s help in the first place–and massive corporations like AT&T and Verizon often benefit as much as the smaller providers the fund is supposed to support.

Genachowski has acknowledged the problems and is spearheading the effort to reform the program. On Monday, he called the fund a "20th century program poorly suited for the challenges of a 21st century world." According to Eliza Krigman at Politico, Genachowski’s plans to modernize the program hinge on phasing out subsidies for phones entirely in order to put all the money toward broadband expansion. Already, a portion of the fund goes to broadband in low-income schools and libraries.

The New York Times reported Monday:

Mr. Genachowski will propose phasing out the payments between phone companies, which he says create "inefficiencies and perverse incentives" that result in waste in the fund. The F.C.C. will also propose consolidating existing methods of paying for rural phone service into a new pool to be called the Connect America Fund, to be used for helping pay for making broadband available to underserved areas.

The current Universal Service Fund and its spending methods are "unsustainable," according to a draft of Mr. Genachowski’s remarks prepared for Monday. "It was designed for a world with separate local and long-distance telephone companies, a world of traditional landline telephones before cellphones or Skype, a world without the Internet — a world that no longer exists."

"We take the chairman at his word when he says he wants to make the Universal Service Fund less wasteful," Free Press research director S. Derek Turner reacted in a statement yesterday, "and we hope he has the political courage to stand up to the big phone companies and turn that promise into reality." Free Press and other media reform advocates have long been frustrated with the Obama-era FCC’s slow movement on broadband expansion and the related question of regulating service providers. 

But efforts to modernize the program have already received skepticism. Matthew Lasar wrote at Ars Technica:

Can the Federal Communications Commission save a huge government program that overpays carriers to provide old school phone service, overtaxes subscribers to subsidize it, discourages modernization, and doesn’t even offer broadband to the low income and rural consumers it purports to serve?

Genachowski insists that the answer is yes, but Lesar’s skepticism and Turner’s jab about "political courage" are born from experience. The lesson of the last two years’ battle over net neutrality seems to be that Genachowski is not willing to stand up to telecom on behalf of users. In December, the FCC approved a net neutrality plan that attempted to split the difference between ensuring an open Web for users and letting telecom control the flow of traffic. The plan placed a number of new restrictions on telecom, but left the fast-growing world of wireless connections entirely untouched. Studies suggest mobile Web technology has been particularly important for blacks and Latinos getting online. 

And there’s still good reason to be concerned about the solutions Genachowski proposes. The plan to get rid of phone subsidies altogether seems, at its best, idealistic, and at its worst, misguided. Just 67.9 percent of American Indian homes have phone lines, according to the Center for Media Justice, compared to 98 percent of the country overall. 

Meanwhile, studies have shown that cost is just one factor that’s keeping many users, especially those of color, offline. There’s also the fact that many access the Web at schools and libraries that are closed in afterwork hours, for instance. According to a 2010 Joint Centers for Political and Economic Studies report, black and Latino Web users are far more likely than others to access broadband via these community institutions. And the effort doesn’t touch at all on the issue of computer literacy, another big barrier to closing the digital divide, particularly among elderly users. The broadband expansion plan will have to deal with these sorts of challenges as well.

Still, the primary concern remains the relationship between Genachowski’s FCC and telecom. However the Universal Service Fund gets rebuilt, the question is will it truly benefit rural and low-income users or will it continue to shift profits around among telecom?