FCC overhaul eyes broadband but could raise bills

[October 15, 2008]  WASHINGTON (AP) -- The head of the Federal Communications Commission wants a massive overhaul of the fees that phone companies pay each other when they connect calls. Supporters say the reforms will help fund improved broadband Internet access for rural America, but consumer advocates question how much the plan will raise people's phone bills.

"This could be potentially a billion-dollar giveaway to phone monopolies, paid for out of consumers' pocketbooks," said Chris Murray, an attorney with Consumers Union.

FCC Chairman Kevin Martin and his staff were putting the finishing touches Tuesday night on a proposal to reform the multibillion-dollar "intercarrier compensation" system, the byzantine menu of charges that telecom carriers pay to access each other's networks. This happens, for example, when a customer of one phone company calls someone who lives in another company's territory.

Martin's plan would also make major changes to the $7 billion-plus Universal Service Fund, a federal program that subsidizes telecommunications service in underserved areas through a surcharge on long-distance bills.

Martin was up against a midnight deadline to circulate his proposal to the four other FCC commissioners three weeks ahead of a planned Nov. 4 vote.

Intercarrier compensation reform is a high priority for much of the telecommunications industry. Under the complex current system, the charges that phone companies pay to connect calls with each other's networks vary based on the type of carrier involved, the type of network traffic and the distance that the traffic travels.

AT&T Inc., for one, has argued that the present system is irrational and based on obsolete regulatory distinctions. Many of those concerns have been echoed by other big telecom companies, including Verizon Communications Inc. and wireless carriers such as Sprint Nextel Corp.

Martin noted in an interview with The Associated Press that the current system leads carriers to send traffic along inefficient routes, to avoid access fees.

However, some of Martin's proposed changes concern consumer advocates. In particular, they question how the FCC might move away from the complicated menu of access charges and shift toward uniform rates. Because the new rates would be lower than what some phone companies generally receive now, those companies could recover at least part of their lost revenue -- $4 billion industrywide -- by increasing fees on consumer phone bills, including "subscriber line charges."

The subscriber line charge appears on local phone bills, and is currently capped at $6.50 per month for consumers by the federal government. But Martin is expected to suggest lifting that cap to $8 or $8.50.

Consumer advocates say Verizon and AT&T especially want a uniform, industrywide intercarrier access rate that would be well below current levels because they pay substantial fees to send calls onto the networks of rural carriers. In turn, the idea has run into significant opposition from many of those rural carriers, which rely on access charges for a big chunk of their revenue.

As a result, consumers who live in rural areas could see some of the biggest phone bill increases under Martin's plan, because rural phone companies would have more lost access revenue to recover, said Ben Scott, policy director for the advocacy group Free Press.

David Bergmann, an attorney with the Ohio Consumers' Counsel and chairman of the telecom committee for the National Association of State Utility Consumer Advocates, believes phone companies are pushing for intercarrier compensation reform for another reason, too.

With so much traffic moving off traditional telecom lines and onto wireless and Internet networks, whose providers pay lower or no access fees, phone companies are watching their access fee revenue shrink. An increase in subscriber line charges paid by consumers would help offset this.

"This would be a guaranteed recovery of lost revenue," Bergmann said. "But there should be no guarantee for any of this."

Martin, however, insisted that phone bills will not necessarily go up because of his plan. Even if subscriber line charges increase, he contends, long-distance rates should go down as access charges decline.

Martin's proposal is also likely to include significant changes to the Universal Service Fund, which subsidizes phone coverage in parts of the country where service would be prohibitively expensive.

For one thing, Martin will likely tap the fund to help rural carriers offset lost revenue from access fees. Martin also is expected to suggest that certain carriers be required to use Universal Service money to invest in and roll out broadband networks.

Jim Kohlenberger, executive director of the VON Coalition, which represents Internet calling companies, argues that the current intercarrier compensation and Universal Service rules actually serve as a disincentive for companies to provide broadband since they instead subsidize traditional voice services.

The Universal Service program is facing mounting pressure since the revenue base that supports the fund is shrinking as wireless services, e-mail and Internet calling replace the old-fashioned long-distance calls that have traditionally subsidized the program. Yet the fund itself continues to grow, driven in large part by payments to wireless carriers.

So Martin is considering a plan to broaden the fund's revenue base by requiring any device with a working telephone number to pay a flat Universal Service fee of $1. At the same time, he is considering options to rein in ballooning Universal Service payouts, such as reducing the payments wireless carriers can receive.

Another idea is to launch a "reverse auction" that would award Universal Service funding to carriers that can build broadband networks at the lowest cost in places where the existing carrier won't provide high-speed Internet access.

"Today and especially in the future, ensuring that everyone has access to broadband is critical," said Martin, one of three Republicans on the five-member commission.

[Associated Press; By JOELLE TESSLER]

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.