The chairman of the Federal Communications Commission on Thursday announced a proposal to reform an $8 billion phone subsidy program by reallocating money to extend broadband Internet connections in rural areas.

FCC Chairman Julius Genachowski said in a speech Thursday that his plan to reform the Universal Service Fund would put about $4.5 billion into two funds to bring wireline and wireless high-speed Internet connections to 18 million homes that don’t have access.

He didn’t reveal many details of his plan, which critics fear will closely resemble proposals by giant phone companies that could favor them. Genachowski will unveil the full plan Oct. 27, when it goes before the four sitting members of the FCC for vote. The proposal could change as other commissioners review it before the vote.

The USF fund comes from line-item charges on monthly consumer phone bills and has exploded in size as firms have applied for subsidies. Some lawmakers from rural areas have been reluctant to substantially change the fund that Genachowski described Thursday as “wasteful and inefficient.” One company, for example, received $2,000 a month from the federal program to service a single rural phone line.

Details of how the new funds would be managed and allocated will surely draw scrutiny — and fierce lobbying. Cable companies have pushed against a plan by telecom giants Verizon, AT&T and others that would give phone firms the first rights of refusal for subsidies in areas where they have already built out. Smaller wireless carriers complain that the big phone companies’ proposal to create $300 million in subsidies for wireless companies is too small and would make it difficult to compete against the biggest firms.

“The companies’ plan has very little to do with increasing broadband adoption and everything to do with allowing monopoly local phone providers to reach further into the pockets of consumers,” said Matt Wood, policy director at public advocacy group Free Press. “The FCC cannot give Verizon and AT&T . . . a green light to raise consumer bills to pad their profits even further.”

Along with changes to the USF fund, Genachowski proposed changes to rate regulations on how telecom companies pay each other to carry calls from one phone to another. But how the FCC reforms what is known as intercarrier compensation could directly affect consumers, which has some consumer groups concerned that phone companies will raise charges for users.


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