The Federal Communications Commission is expected to act today to more than double subsidies delivered to local phone companies in areas where telephone service is expensive, forcing long-distance customers to pay for the roughly $230 million in increases, according to industry and government sources.
The commission's staff portrays the proposals as a spur to greater competition. Under the new system, competitive local telephone providers, along with established local companies, would be eligible for the subsidies--an incentive for rivals to stake out new ground.
But consumer advocates doubt that local competition will sprout outside wealthy urban areas, where competitors can recoup the costs of erecting new phone systems by spreading them over many customers. Some derided the commission's anticipated action as a form of corporate welfare, noting that the bulk of the new money is expected to end up in Mississippi, where regional giant Bell South Corp. would be the primary recipient.
"What the commission is proposing is outrageous," said Brian R. Moir, a telecommunications attorney whose firm, Moir & Hardmand, represents large business customers.
"The commission is going to be giving money to companies that are industry leaders, that are earning five times what the leading aerospace companies are earning."
But Bell South officials defended the program as a critical way to keep phone rates affordable in rural areas: In some parts of Mississippi, the costs of providing service exceed $39 a month, yet, because of subsidies, Bell South charges less than $20. "This money will go to customers who truly need it," said company spokesman John A. Schneidawind.
The commission's action comes as part of its reorganization of a program known as Universal Service, which distributes a collection of funds in an effort to ensure that basic telephone service and Internet access is widely available and affordable throughout the country. One fund supplies libraries and schools with money to connect to the Internet. Another gives grants to small, rural telephone companies. Today, the commission will tinker with another fund that subsidizes the costliest service for major regional Bell companies across 19 states and Puerto Rico.
In years past, subsidies have been calculated with numbers from the account ledgers of companies requesting help. Now, the commission is expected to approve a complex computer model to crunch the costs of doing business and account for geography, generating precise estimates of costs from area to area. Then the commission is expected to adopt a formula delineating which areas are eligible for subsidies.
Applied together, the model and the new rules will increase the size of the fund from about $207 million to $438 million, sources said, while extending subsidies to areas in seven new states--Alabama, Mississippi, Missouri, Vermont, West Virginia, Wisconsin and Wyoming. No area will lose its grant immediately, sources said, though the commission was negotiating a scheme that could phase out some areas over three years.
Long-distance companies will pay for the increases via fees they apply to their customers' bills.
Some of the recipients question whether the subsidy will be sufficient to keep costs down. "This model underestimates the costs of serving rural customers in the West," said Melissa E. Newman, vice president for regulatory affairs at US West Inc., the regional Bell that serves Wyoming.