Barton Calls USF Bloated, Unsustainable

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The FCC did not wind up having the last word on the Universal Service Fund in Washington Wednesday.

Only a couple of hours after the commission voted to increase payments into the fund by wireless companies and to officially expand it to cable VoIP (voice over Internet protocol) voice service, the House Telecommunications Subcommittee heard testimony from 10 witnesses on the fund, which telecom companies pay into to underwrite phone service to rural and underserved areas.

Republicans on the committee were in general agreement that the fund, essentially a tax on long-distance telephone service providers, needs major reform, "if we can't kill it," said House Energy & Commerce Committee Chairman Joe Barton (R-Tex.), clearly favoring the latter.

Saying the fund was bloated and unsustainable, Barton argued that it was meant to underwrite one telephone hookup in every house but had morphed into a gold-plated subsidy for multiple services at escalating cost to those paying into the system, which could be easily gamed.

"The Universal Service Fund as we know it today consumes more than $7 billion. B as in 'boy'," he said. "In 1996, when we passed the Telecommunications Act, that same fund spent less than $1 billion. So it's grown 7,000 percent, or something like that, in the last 10 years."

As an example of gaming the system, he pointed to one Texas telecom that served 6,000 customers, but got $28 million in subsidies, enough to pay $13 million in dividends to shareholders in one year.

Telecommunications Subcommittee Chairman Fred Upton (R-Mich.) pointed out that the people really paying the subsidy were customers. "[A]s we all know, the High Cost Program of the Universal Service Fund is paid for, in large part, by mandatory payments from all providers of interstate and international telecommunications services, and those providers pass these costs on to their customers - all of our constituents," he said. 

Democrats want reform the system too, but rather than cut it back, some want to expand the fund to include providers of broadband service. The FCC exempted telephone broadband revenues from the fund last year, one of the reasons the FCC took action Wednesday to increase payments into it to compensate for that.

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