Review sought for rural phone subsidies

July 20, 2006|By JON VAN | JON VAN,CHICAGO TRIBUNE

Rural phone-service subsidies are so bloated and inefficient that providing wireless or satellite phones is cheaper, an economic analysis prepared for a senior citizen advocacy group suggested yesterday.

Taxes to support the universal service fund, which is intended to pay for higher costs of serving rural areas, are growing so fast as to force some low-income people to drop phone service, said Thomas Hazlett, a George Mason University economist who prepared the analysis for the Seniors Coalition.

"It's perverse when shifting tax money around for the universal service fund results in more people leaving the network than joining it," said Hazlett.

Totaling more than $7 billion a year, universal service outlays have nearly tripled in the past decade. The fund is financed by a tax of more than 10 percent on long-distance phone service, but the Federal Communications Commission is looking for new revenue sources.

The FCC decided last month to raise the tax on wireless customers and to impose the tax for the first time on Internet telephone customers, but even those changes are unlikely to keep up with rising expenditures.

FCC Chairman Kevin J. Martin has indicated that he favors shifting to a flat tax of $1 or more on every telephone number issued.

Seniors and low income customers who seldom place long-distance calls would see their phone bills rise if that happens, said Flora Green, a national spokeswoman for the Seniors Coalition. "The fund should be capped and then reviewed from top to bottom," Green said yesterday at a teleconference to unveil the Hazlett study.

Educational groups have also expressed reservations about the change, mentioning universities that maintain thousands of phone numbers for student dormitories where long-distance calling isn't permitted.

Roger N. Bonnett, telecommunications manager at Wake Forest University, estimates that if Martin's plan is adopted, his university's universal service tax payments would jump from less than $5,000 a year to about $84,000.

Large phone carriers have endorsed Martin's idea, embracing its simplicity and predictability. But they have called for exemptions for low-income customers with lifeline phone service and reductions for wireless customers with multiple cell phones under family-based plans.

Hazlett said that reforming the universal service fund is difficult because rural phone companies that benefit directly from the plan have political influence in Congress. They beat back efforts in the Senate last month to impose a cap on expenditures.

Universal service subsidies have become so widespread that rural phone companies on average collect only 27 percent of their revenue from customer payments, Hazlett found. Even so, many rural customers are opting to drop traditional wired service to go wireless because "it's cheaper, and they like the mobility," he said.

Martin has suggested that he might be open to changing the way universal service funds are distributed, Hazlett said. This could include an auction that would let wireless carriers bid against traditional wired operators to serve rural areas.

Many rural carriers receive subsidies that exceed $1,000 a year per customer, with some subsidies topping $10,000 a year per customer, Hazlett said.

Jon Van writes for the Chicago Tribune.

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