Chicago Tribune, July 1, 2006

Changes enacted by the Federal Communications Commission will raise one of the obscure taxes tacked on to your monthly phone bill in the coming months.

The government-mandated "universal service charge" goes toward a program that subsidizes rural phone connections and one that spends money at an ever-accelerating rate. Its outlays tripled from $2.3 billion in 1998 to $7.3 billion last year and federal regulators are scrambling to make ends meet.

More than 10 percent of charges for traditional long-distance calls go for universal service, but that revenue has not kept pace with spending. So last month FCC commissioners voted to increase the amount assessed against cell phone users to boost revenue, and they voted to require Internet telephony service users to begin paying into the fund as well.

But no one at the FCC believes these increases will be enough to keep up with spending increases.

Kevin Martin, the FCC chairman, advocates scrapping the current percentage system and instituting a flat rate of $1 to $2 a month on every phone number. Thus a family with four cell phones and a traditional landline phone would pay the flat monthly charge for each phone number, regardless of how much they use the phones.

This has raised objections from several advocacy groups that claim it will actually shift the burden of paying for universal service to the poor and elderly, who have phones for security reasons but do not use them much.

Martin has said that no solution will please everyone and his flat-rate plan enjoys the merits of being easily understood. It will also promote phone number conservation, he noted.

Industry insiders and consumer advocates have long agreed that the way the universal service fund operates is outmoded, based upon telephone technology as it worked in the 1930s. But despite a consensus that a complete reworking of the concept is needed, policymakers seem to lack the will to do it.

Congress is currently revising several aspects of telecommunications law in order to enable phone companies to offer video in competition with cable operators. But concerns about how the Internet should operate has dominated that endeavor, and the question of universal service has gotten scant attention.

Rep. Joe Barton (R-Texas), who heads the House Energy and Commerce Committee, called the universal service fund bloated and unsustainable and suggested that he would like to kill it, but the bill that passed in the House barely mentions universal service.

In the Senate, Ted Stevens (R-Alaska), chairman of the Senate Commerce Committee, sought to bolster revenue for the fund and fend off efforts to put a cap on spending. It is unclear if the two branches of Congress will enact a comprehensive telecom bill this year, but if they do, it seems unlikely there will be any major changes to the universal service fund.

"There was some hope that we'd get a comprehensive revision of the telecom act," said James Speta, a Northwestern University law professor specializing in telecommunications. "We need a modern law that addresses digital technology as well as a new universal service approach, but it appears if we get anything this year, it will be piecemeal."

Consumer advocates and phone company lobbyists have spent most of the year fighting over "net neutrality," a push to outlaw the ability of network operators to apply different levels of service to Internet sites.

"With so much focus on net neutrality, other issues are being overlooked," said David Kolata, executive director of the Chicago-based Citizens Utility Board. "Universal service is among the issues being overlooked."

While consumer advocates such as Kolata support the concept of subsidizing phone service to low-income and rural customers, he acknowledged that poor oversight can enable phone companies to enrich themselves at the expense of their customers.

"The devil is always in the details," Kolata said.

The federal universal service fund is duplicated in many instances by state funds that also seek to subsidize phone service, said Vince Vasquez, an analyst with the San Francisco-based Pacific Research Institute, a free-market think tank.

"It's become a corporate welfare system," said Vasquez, who cited the case of a small phone company in Texas that handed out hundreds of dollars to its customer-owners as a way of distributing the subsidy money it received.

"It's a tax levied by bureaucrats," he said. "There's no accountability."

The recent decision by the FCC to collect universal service fees from Internet telephony services later this year was greeted with equanimity at Vonage Holdings Corp., a pioneer in providing voice over Internet protocol service.

"It will amount to less than a dollar a month, which we'll pass along to our customers," said Brooke Schultz, a Vonage spokeswoman. "But it affects all providers equally, including cable operators, so it will have a neutral competitive impact on us."

Jon Van is Tribune staff reporter. He can be reached at jvan@tribune.com. Copyright © 2006, Chicago Tribune