Regulators Urge FCC to Reject Subsidy Plan

A number of state and federal regulators Monday recommended rejecting part of a proposed reform of subsidies that could have reduced the federal support some states receive to help keep telephone service affordable.

The regulators asked the Federal Communications Commission to abandon its 1997 decision that subsidies gleaned from long-distance calls nationwide should be limited to paying for no more than 25% of any state’s affordability needs.

Under last year’s FCC decision, each state would be responsible for collecting the remaining 75% from in-state sources such as subsidies added to the cost of business telephone service.

The 75-25 split was how the system had worked for many years, but the FCC also proposed changing the method used to distribute subsidy funds and some states feared that the 25% federal portion would be inadequate under the new system.

The regulatory group, known as the Federal-State Joint Board on Universal Service, on Monday instead recommended a two-step test for determining how much federal support should be paid to states in which the cost of service is high. But the group also recommended that no matter how the two-step test came out, no state should have its federal support reduced from current levels.

States will receive about $250 million this year under the existing subsidy program that keeps phone service affordable in nonrural areas. An additional $1.4 billion in federal subsidies go to rural areas in a separate program that will not be reformed for several more years.

Industry analysts said that while many details remained to be determined, the recommendation marked a small victory for sparsely populated states in which the cost of phone service is high.

The U.S. Telephone Assn., a group representing local carriers, said it had hoped for more specific recommendations.

The FCC, which plans to adopt a final proposal in the spring that would take effect by July 1, said it would take comments on the recommendations before making any changes.