Call Me, We'll Do A Free Lunch

Katherine Mangu-Ward | May 5, 2008

The Universal Service Fund is one of those annoying lines on your phone bill that turns your $39.99 plan into at least 50 bucks a month. Essentially it takes taxes on interstate telephone service to subsidize telecom service for poor and rural areas, as well as broadband for libraries, health care facilities, and schools.

Unsurprisingly, payouts to phone companies are raging out of control, yet many rural areas still have notably inferior service:

The cost of the program has skyrocketed because of a bizarre funding formula which the FCC uses: the so-called "identical support rule." The agency calculates subsidies to smaller wireless carriers that serve rural areas based on the support that incumbent carriers receive per line, rather than on the actual costs of the smaller telcos. This has resulted in a dramatic rise in USF payments from $2.6 billion in 2001 to $4.3 billion last year.

Not to rush into anything, but it looks like the FCC may be thinking about maybe considering at some point reforming the system. Most likely this will just mean switching to subsidizing broadband instead of telephones.