Barton Asks Why Flush Rural Telcos Get USF Funds
House Commerce Committee Chmn. Barton (R-Tex.) took another swipe at the Universal Service Fund (USF), regaling onlookers at a hearing Wed. with examples of questionable use of USF support by seemingly flush rural telecom companies in Tex. A company in Big Bend, Tex., with 6,000 customers got $9.6 million in USF money, posted a 12.8% return on equity and paid $3 million in dividends to shareholders, he said: “It also runs a hunting ranch to entertain rural phone lobbyists.” A Tex. panhandle company got $2.6 million in federal USF money and “paid back more in dividends than it charged customers,” Barton said: A small telecom operating outside Houston gets “huge subsidies” to serve wealthy customers.
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“The system is gameable,” Barton said during the Telecom Subcommittee hearing on the USF high cost program. “If we can’t kill it, we ought to seriously reform it,” he said, urging such reforms as: (1) Only one connection per household or business should be eligible for USF support. “There’s no reason that a telephone user who pays into the funds should have to subsidize extra phone lines in the house or a mobile phone in addition to a wireline phone.” (2) Support should be based on costs incurred by the “lowest-cost provider in that particular area.” Wireless carriers should get USF support but based on the costs they incur building towers and getting connections, not on the costs of “the existing wireline provider who has no incentive to control its costs.”
“This isn’t about providing every house with cell phones, computer hookups and the opportunity to chat on 2 or 3 lines at once,” Barton said. The USF was set up to make sure all Americans had phone service, not to permit everyone to add cell phones and Internet hookups, he said. “The E- rate program is probably the one program in universal service that’s in most need of reform, but it’s not the only one,” he said: “The high-cost fund has swollen considerably since the passage of the [Telecom Act] in 1996.”
Rep. Terry (R-Neb.), cosponsor with Rep. Boucher (D-Va.) of a universal service reform bill (HR-5072) has worked with many rural telecoms and never encountered “egregious” behavior such as Barton described, he said: “Maybe it’s a Texas thing.” Terry and Boucher urged the subcommittee to give serious thought to their bill as a reform vehicle. Barton said it might be necessary to cut back the fund, but Boucher and Terry urged expanding it to cover buildout of broadband facilities.
Boucher thinks Congress could act by year’s end on universal service reform if HR-5072 were approved, he said. The bill would add other contributions sources such as VoIP providers and intrastate revenue. It would place more controls on disbursements and promote broadband deployment, Boucher said.
The subcommittee may hold more hearings on aspects of the universal service debate, said Subcommittee Chmn. Upton (R-Mich.). More than 12 members attended the late-day hearing that included 10 witnesses, all urging some kind of reform of the multi-billion-dollar program. A USTelecom representative recommended “broadening the base of contributors, carefully targeting recipients and tapping government resources to speed broadband deployment.”
A National Telecom Co-op Assn. representative questioned the subtitle used to describe the hearing -- “What Are We Subsidizing and Why.” It’s not a subsidy or a tax, it’s “an industry-funded cost-recovery mechanism that offsets the higher cost to build and maintain… networks in sparsely populated areas,” said David Crothers, exec. vp of the N.D. Assn. of Telephone Cooperatives.