Wednesday, February 28, 2007

Verizon Argues Universal Service Phone Subsidy Too Costly

The Universal Service Phone Subsidy system is broken because it has failed to adapt to the changing marketplace, said Tom Tauke, Verizon executive vice president for public affairs, testifying before the Senate Committee on Commerce, Science and Transportation.

While the price of basic telecommunications service has gone down, the percentage rate of the surcharge on phone bills has gone up, said Tauke. In the last eight years, he explained, the cost of the program that provides subsidies in parts of the country that are expensive to serve has grown from $1.7 billion to $4.1 billion -- a 142 percent increase. He argued that the increase is due, in part, to the fact that there are "three, four, even five wireless carriers receiving universal funding" in many areas.

As wireline carriers lose traditional lines to wireless, the cost-per-line increases, thus driving up the subsidy per customer. Carriers with higher costs are rewarded with higher subsidies, thus depleting funds available for other, lower-cost carriers.

Tauke said Verizon supports reforms of how funds for the high-cost program are collected and dispersed. The former would be based on telephone numbers, so the fund is supported by all voice customers; the latter would include a "reverse auction," or competitive bidding mechanism, through which the carrier with the lowest bid would gain the support.

Verizon filed a "reverse auction" proposal with a joint state-Federal Communications Commission board late last month.

He suggested four steps for determining the payment of universal service support: Initially capping the funding in each area at current levels; adopting a "reverse auction," or competitive bidding, to select the most efficient provider and the best terms; starting the new market-based process in areas where there are at least two wireless carriers in the program; and, after the initial wireless auctions, opening a new FCC proceeding to review the auction process and determine next steps.