The federal government is turning off the subsidy spigot that has provided hundreds of millions of dollars over the years to help some of Hawaii’s largest cellphone providers expand their wireless networks across the state.
Sprint Nextel Corp., Mobi PCS and T-Mobile all sought and received regulatory approval to tap into the Universal Service Fund, a federal program initially designed to provide land-line telephone companies with the resources to extend service to customers in high-cost rural areas.
The program was later expanded to allow cellphone providers to collect a per-customer subsidy equal to the one given to land-line carriers to provide rural customers with competing services. The land-line carrier in this case is Sandwich Isles Communications, which received $858 per line per month in 2011 from the USF.
By pegging its subsidy to that of Sandwich Isles, Mobi PCS was able to collect $119.3 million in USF support from 2007 through 2012, according to Federal Communications Commission records. The annual subsidies received by Mobi PCS were higher than those of Sandwich Isles in each year from 2009 through 2011. Sprint Nextel Corp. took in $78.7 million from 2004 through 2011, and latecomer T-Mobile received $3.6 million in USF support from 2011 through 2012.
The average household pays a monthly fee on its phone bill ranging from $2.50 to $2.75 to support the USF, according to the FCC.
As of June 2012, Mobi PCS had 2,991 lines eligible for USF support in high-cost areas, compared with Sandwich Isles’ 2,334 lines, according to FCC records. T-Mobile had 346 eligible lines, and Sprint Nextel had 169 eligible lines, according to the FCC.
The FCC in 2011 overhauled its USF rules, capping the subsidy for land-line, or incumbent, carriers at $250 and eliminating the so-called “identical support rule” that channels funds to cellphone companies. Both reforms are being phased in over the next few years. The FCC restructured the USF to refocus it on broadband technologies as well as to address concerns of abuse and waste.
Then-FCC Commissioner Robert McDowell pushed for the reforms, saying, “Like an unabated fever, expenditures from this fund continue to spike out of control.” McDowell, who stepped down from the commission in May, cited the identical-support rule as a major reason for the sharp rise in USF payments.
FCC commissioners who opposed the identical-support rule said it was flawed because its funding formula did not reflect the wireless carriers’ actual costs.
For Mobi PCS, Hawaii’s only locally owned and operated wireless provider, the federal subsidies allowed the company to ramp up service after its launch in 2003 and quickly challenge national cellphone companies in the local market.
Mobi PCS used the funds to construct cell towers, install switching centers and lease land for its equipment statewide, said Peter Gose, the company’s director of regulatory affairs.
“Lease rents are expensive in Hawaii, and it’s difficult to site cell towers here because of the terrain,” Gose said. “There’s also constant maintenance that needs to be done at our sites.
“Cellular telephone switches are essentially large computers. Like upgrading an operating system on a computer, the same needs to be done with these kinds of electronics,” he said.
Under the phase-out, Mobi PCS expects to receive about $6 million in 2013, $4 million in 2014, $2 million in 2015 and $800,000 in 2016, according to Gose.
Sprint Nextel similarly used the USF funds to expand its network in Hawaii, according to company spokeswoman Crystal Davis. The company stopped drawing from the fund in 2011, she said.
“The phase-out has no impact on our ongoing operations. We remain an active service provider in Hawaii,” Davis added.
T-Mobile used the USF support to “expand its coverage and maintain and improve its network,” spokesman Scott Goldberg said. “Consumers in Hawaii have benefited from the expanded and enhanced service throughout Hawaii.”
T-Mobile plans to stop drawing from the fund after 2013, Goldberg said.
