WASHINGTON – Americans are turning away from home landlines and toward mobile phones, but a federal program continues to pour $8 billion a year into phone service for rural homes and businesses. Last year in Chelan, Wash., for instance, the fund paid an average of $17,763 each for 17 residents to get phone lines.

But as the nation looks to wireless and fiber broadband networks as its on-ramp to e-mail, tweets and Skype calls, lawmakers and regulators have called for sweeping changes to the Universal Service Fund.

Created in 1997 to connect the nation by phone, the subsidy program has come under criticism as a symbol of inefficient federal telecommunications policy. In some areas, the subsidies go to multiple companies providing the same services.

Critics suggest that satellite service would be cheaper than stringing phone lines across mountains and plains and then maintaining those services indefinitely through federal subsidies, which come from monthly fees charged to long-distance and wireless customers.

The biggest carriers, AT&T and Verizon Communications, are calling for changes and rallying behind legislative and policy reforms. Yet recent data released by the Federal Communications Commission and the House Energy and Commerce Committee show that the telecom giants are also benefiting the most from the service fund.

The firms are using the money to pay for wireless networks, which is allowed as long as they are providing cell phone service in unserved areas. But critics say the companies would be building cell towers even without federal help.

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“In some parts of the country, there are up to 20 providers receiving subsidies,” Rep. Cliff Stearns, R-Fla., said in a recent news release about the data. He said it calls “into question the size, structure and purpose of the subsidies.”

AT&T and Verizon were the top recipients of Universal Service Fund grants last year. The companies point to the subsidy program as symbol of backward regulation.

Ivan Seidenberg, chief executive of Verizon, said the program “rewards inefficiency, discourages competition and broadband deployment, and unduly benefits specific companies rather than consumers.”

He said in a letter to the White House last month that “the majority of high-cost funding is distributed to incumbent wireline local exchange carriers … with little or no accountability as to how the money is used.”

Asked why it opposes a program that it benefits from, Verizon said it was not a major recipient of the funds until it acquired Alltell, a rural carrier, a few years ago.

The FCC has proposed redirecting the program to support broadband. The agency has also suggested that only one provider in a geographic area receive grants.

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Public interest groups say there needs to be better oversight of whether firms getting the money truly qualify for it. The groups also say that wireless technology is cheaper to deploy than traditional phone lines or underground fiber networks, but that cell phone companies don’t seem to be getting smaller awards.

The groups also say the FCC should recalculate how much money it distributes for broadband connections because the return on investment is so much greater for Internet service. That should make companies better able to pay for their own operating costs without federal assistance, said Derek Turner, a policy director for the public interest group Free Press.

“We support the reform of the fund, but what you don’t want is the same inefficiencies for a new fund that has only changed to provide money for a different technology,” Turner said.BILLIONS IN ASSISTANCE

FROM 2007 TO 2009, AT&T received $1.3 billion from the Universal Service Fund, and Verizon received $1.2 billion to bring communications services to areas that would be too costly to serve without federal aid.

THE NEXT BIGGEST fund recipient was CenturyTel, which serves 33 states from its base in Louisiana and got $931 million from the fund from 2007 to 2009. Sprint Nextel received $241.4 million in the three-year period.

 


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