Big Subsidies for Big Phone Companies

Senator Trent Lott, R-Miss., left, confers with Rep. Chip Pickering, R-Miss., at the state Legislature in the Capitol in Jackson, Miss., in this Jan. 4, 2006, file photo. Mississippi's competitive cellular carriers received more than $314 million in federal funds from a telephone tax from 2003 through the first four months of 2007, the most of any state, according to an Associated Press analysis of more than 20,000 disbursement records. Pickering, a former member of Lott's staff, helped shape the 1996 telecommunications law, according to his congressional biography. (AP Photo/Rogelio Solis, File) (Rogelio Solis - Associated Press)

Initially, the lure of a handout wasn't enough to attract new entrants. But the dramatic growth of the cellular telephone industry changed all that.

Wireless providers discovered that the subsidy _ based on what the wired companies were getting per customer _ would cover their costs and then some.

A "no losers support system"

Critics say the cellular companies are enjoying a windfall because their networks are much cheaper to build and maintain than miles of wires and telephone poles. They say logic dictates the subsidy should be based on actual cost.

Making the system more expensive, companies are compensated on a per-subscriber basis. Each time a cell phone company signs up a new customer, it collects a subsidy.

If the customer keeps his land line, the fund pays a subsidy to both carriers. If the customer opts to drop his land line and keep his cellular phone (the goal of competition), the per-subscriber subsidy for the land line carrier actually goes up, keeping the overall subsidy unchanged. In some high-cost areas, the subsidy can amount to several hundred dollars per customer per month.

Since the cellular competitor's rates are based on the incumbent's per-customer subsidy, the cell company gets more money, too. And so does every other cellular competitor that does business in the area. In some places there are two, three or more.

"This is the essential irrationality of the system, says Billy Jack Gregg, a consumer advocate and member of the federal-state board that helps set fund policy. "It makes no sense to subsidize multiple carriers in a high-cost area."

Gregg has testified to Congress that the "bizarre" program amounts to a "no-losers support system" in which participants are paid "for all lines they serve in high-cost areas, no matter how duplicative or costly this additional support may be."

Mississippi tops the list

Mississippi's competitive cellular carriers received more than $314 million from 2003 through the first four months of 2007, the most of any state, according to an AP analysis of more than 20,000 disbursement records.

Second was Puerto Rico, at $236 million, Kansas third at $139 million. At the bottom of the list, receiving no funding for competitive carriers, were South Carolina, Rhode Island, Ohio, Massachusetts, Idaho and Delaware.