Subsidies for rural phones criticized

The Federal Communications Commission has fallen short in its effort to reform a government program that subsidizes telephone service in rural areas, including Hawaiian Home Lands, according to a report released Wednesday by a Las Vegas-based think tank.

The Alliance for Generational Equity, which refers to itself as a nonpartisan advocacy group, said the FCC’s newly imposed cap on the amount that companies like Hono­lulu-based Sandwich Isles Communications can receive from the ratepayer-funded Universal Service Fund doesn’t go far enough.

The cap, which is being phased in by the FCC, will reduce the amount of "high cost" subsidies that Sandwich Isles can claim to $250 per line per month by June 2014 from the $858 per line per month that Sandwich Isles collected in 2011 before the cap was implemented. The amount Sandwich Isles received per line was the fifth highest of all companies claiming high cost subsidies, according to the FCC.

Officials from Sandwich Isles, and other telecom companies that serve rural areas in Alaska and New Mexico, testified before a U.S. House subcommittee last month that the reduction in the subsidy would impair their ability to provide service to their customers.

However, the authors of the AGE report said they felt the overall impact on the Universal Service Fund was minimal.

"The so-called cap will hem in only about 2 percent of total disbursements under the USF program," the report’s authors wrote. "This laughably spacious ceiling — in a day when satellite voice and broadband service is offered to virtually every U.S. household for $600 a year — will fail to remedy the endemic waste in the USF," according to the report.

The report was written by Thomas Hazlett, professor of law and economics at George Mason University, and Scott Wallsten, senior fellow at the Georgetown University Center for Business and Public Policy.

A big part of the FCC’s 2011 reform of the USF program was to shift the focus of the subsidies from voice to broadband service. The AGE report criticized the move, saying it provided a new rationale for "breathing renewed political life into a failed government initiative that taxes urban phone users, most heavily poor households who use wireless phones and make long-distance calls, in order to subsidize phone companies and property owners in rural markets."

FCC officials took issue with the report’s conclusions.

"The FCC’s historic reforms of universal service in November 2011 took unprecedented steps to end waste, fraud and abuse, while adopting measures to connect millions of currently unserved Americans to broadband," said Mark Wigfield, deputy director for the FCC’s office of media relations.

"The reforms include capping subsidies at a maximum of $250 a line per month and limiting corporate overhead expenses. These and other reforms protect the businesses and consumers who pay for the program through universal service fees, and free up resources to expand broadband connectivity to all of rural America without growing the size of the universal service fund."