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Is the FCC Reaching Into Your Pocket to Pad Industry Profits?

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Federal Communications Commission Chairman Julius Genachowski is preparing to make a big announcement on Thursday. It's sure to be filled with platitudes about the benefits of broadband and boosting the economy. But the devil, as always, will be in the details.

And that's how we'll know whether the FCC is sticking up for the consumers they're supposed to represent, or whether we're witnessing the agency's complete capture by the industries it's supposed to regulate.

Another thing: Your phone bill is almost certainly going up.

Genachowski is expected to unveil his plans to "reform" the Universal Service Fund (USF) -- the bloated government program with the worthy goal that all Americans must have access to basic phone service.

There's no question USF needs to be fixed and re-purposed to support broadband expansion. The fund is wasteful, inefficient and tied to old technology. But the FCC's reform plan appears to be based on one written by the phone companies. And the money to pay for it is coming straight out of your pocket.

Stuck in the Past

We all pay for USF through a monthly charge on our phone bills. The fund was a good idea that kept phone prices low in rural areas and ensured low-income Americans were connected. But over the years it has fallen prey to waste, fraud and abuse as the industry figured out how to game the system.

It's not like this problem has gone unnoticed in Washington. The FCC and Congress have been wringing their hands over the need for reform almost since the program began. The FCC's National Broadband Plan, published last March, agreed that the time had come to significantly restructure USF to ensure that all Americans had access to broadband, while reducing the system's inefficiencies.

The biggest problem with USF is that it's stuck in a pre-Internet era. Back when the only product a phone company could offer was a basic local service plan, subsidies made more sense. The $20 a month they could collect for this service didn't always cover the cost of building an entire telecommunications network.

But now that same provider can offer voice, broadbandand even video. Those revenues can add up to more than $100 per month, which may eliminate the need for subsides altogether. At the same time, wireless carriers are deploying voice and data services deep into rural America without any subsidies.

Yet we still send nearly $5 billion each year to small rural phone companies, and incredibly profitable telecom giants like AT&T and Verizon ( received more than $800 million in subsidies in 2010 alone). All of the money poured into USF could be spent much more wisely by targeting the areas that actually need help and by focusing on the obstacles to broadband adoption.

The ABCs of Bilking Consumers

But instead of treating USF with the tough medicine needed, the FCC is shopping an industry-written "reform" plan that it appears to have every intention of rubber-stamping.

The industry-authored proposal is known as "America's Broadband Connectivity" plan, or ABC for short. But it has very little to do with bringing broadband to unserved areas, and everything to do with shifting costs from carriers to consumers.

Here's the gist of what the industry has proposed: The FCC will reduce the per-minute charges that wireless and long-distance companies like Verizon and AT&T pay to rural phone companies when they deliver calls destined for those rural companies' customers. This will save Verizon and AT&T billions.

But at the same time, the plan would allow all carriers to increase their charges for basic local phone service by as much as $4.50 per month. This means AT&T and Verizon, which already stand to save billions in reduced payments to the rural carriers, could double dip by raising the rates on their own customers.

If enacted, this plan would substantially raise phone bills for tens of millions of consumers while transferring billions in wealth to the largest phone companies. Those Americans who can least afford higher bills and who are less likely to have broadband -- the poor and elderly -- are the ones who will bear the greatest burden of this "reform." People on fixed incomes or out of work can hardly afford price hike the FCC foist upon them.

There's more: The industry-authored plan would redirect billions in subsidies to a "Connect America Fund," which in theory will support rural broadband networks. But many rural providers already have built broadband networks. And in the areas that truly lack any broadband options (less than 3 percent of the nation's households), the Connect America Fund will funnel subsidies to incumbent phone companies, ignoring the fact that independent ISPs, nonprofits, or municipalities could offer better service with lower subsidies.

In exchange for this ransom, the carriers claim they will deploy broadband. But there's no accountability. In fact, the incumbents' plan would forbid the FCC from requiring any service quality or price guarantees. In other words, they want to take government subsidies to offer a monopoly service but don't want any constraints on how much they charge for it. While they get rich, there's no obligation for them to build better networks or lower prices.

That's why groups including AARP, Consumers Union and the National Association of Consumer Advocates are pushing Genachowski to reject the industry plan. "While we recognize that USF reform is truly needed," they wrote to the FCC on Tuesday, "we cannot accept the premise of the ABC Plan -- that consumers, especially the most vulnerable, should bear the burden of increased costs while allowing the companies to maintain excessive profits with no oversight or accountability."

FCC: Fully Captured Commission?

These consumer advocates have reason to be worried. The signals coming out of the FCC aren't good ones, starting with the fact that the only plan the agency put out for comment was the industry's ABC boondoggle even though better plans and ideas exist .

Maybe this shouldn't be a surprise any longer. The dictionary entry for "regulatory capture" might as well be illustrated with a picture of the FCC's headquarters with an AT&T logo plastered on the side. In today's Washington, big corporations feel like they can push feeble politicians into doing whatever they want and there's little reason for them to think otherwise.

Details of the FCC's plan have been hard to come by, and much could change between now and the FCC's next public meeting in a few weeks. It's not too late for the FCC to choose another path, one that holds AT&T and Verizon accountable and doesn't hand over your hard-earned money to the wealthiest corporations just because they're threatening to hold our broadband future hostage.

The baseline for the FCC should be what's best for consumers, not just to slightly water down the industry's worst ideas and expect the public to be satisfied with something "less bad."

A rip-off is still a rip-off even if you dress it up and call it "reform."

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