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)

Dorgan has received $15,000 from Western Wireless Corp.'s political action committee (now part of Alltel) making him the former rural cellular company's favorite senator at the time. The senator's leadership PAC picked up an additional $8,000.

Dorgan and Stevens say they oppose the primary line restriction because it would put rural businesses at a competitive disadvantage to their urban counterparts.

The core challenge for Congress is the law itself, which is vague regarding what specific services should be subsidized.

"What is it we're willing to pay for?" Dorgan asks. "That's why there needs to be some sort of resolution for what is the Universal Service Fund and what it should cover going forward."

Big contributions from a small company

In Mississippi, the top recipient of cash among cellular providers is Cellular South Inc., a 900-employee private company, whose executives have been prolific in their giving. Officers of the company and its corporate parent have dealt at least $142,550 in contributions to federal campaign committees, according to records.

Favorites include Mississippi Republican Rep. Charles E. "Chip" Pickering and Sen. Trent Lott. Pickering is a former member of Lott's staff and helped shape the 1996 telecommunications law, according to his congressional biography.

The company's executives also gave heavily to the successful gubernatorial campaign of Republican Haley Barbour in 2003. Barbour is a former lobbyist who worked on behalf of BellSouth Corp. (now part of AT&T) and the U.S. Telecom Association.

Sherry P. Stegall, senior vice president at Cellular South, noted in an e-mail to AP that the company's political activity "pales in comparison to larger carriers." She said Cellular South has received no windfall.

The company is required to "reinvest all support" from the fund and file quarterly reports with regulators. For every dollar the company receives from the fund, it has invested $1.20 in developing its networks, she said.

With the contribution percentage from consumers having recently reached an all-time high and costs continuing to spiral, the sustainability of the fund is in doubt, and pressure is on the FCC and Congress.

The FCC is considering a recommendation by the federal-state board to cap funds paid to competitive carriers. There is considerable opposition among members of Congress, including Stevens and Pickering, and rural wireless carriers.

"It would be a Band-Aid or stopgap that would prevent us from getting to the comprehensive reform," Pickering said in an interview. He supports funding for wireless carriers because, he says, they are the most efficient providers when it comes to serving rural areas.

The joint board is considering long-term change. But with so many vested interests involved, progress has been difficult. "They tend to checkmate each other," board member Gregg said. He likens the fund to "a machine that somebody's created but nobody can find the 'off' switch to."

AT&T, even though it collects huge subsidies for both its wired and wireless operations, supports a temporary cap and the creation of pilot programs to fund cellular and broadband services.

FCC Chairman Kevin Martin, a persistent critic of the universal service system, says the challenge is to keep everyone connected and move toward offering more advanced services like broadband. "But we've got to do that in an efficient way," he says.

Martin has been pushing a "reverse auction" approach that he says would accomplish that. Potential providers would bid against one another to offer a set of services, with the low bidder winning the subsidy. An auction would end the inefficient practice of subsidizing multiple carriers in a single rural area, he argues.

Alltel has indicated it would support a reverse-auction trial. The company would also support a separate fund for wireless services. Verizon Communications Inc. is a major proponent of the concept.

But Martin acknowledged the idea hasn't yet caught on among lawmakers. "I'm always optimistic," he said.