updated 10/16/2008 12:34:34 PM ET 2008-10-16T16:34:34

The nation's top telecommunications regulator wants to overhaul the fees that phone companies pay each other to connect calls and the fund that subsidizes phone service in underserved areas. Supporters say the reforms will help bring broadband to places that lack high-speed Internet, but consumer advocates question how much the plan will raise phone bills.

"This could be potentially a billion-dollar giveaway to phone monopolies, paid for out of consumers' pocketbooks," said Chris Murray, an attorney with Consumers Union.

Federal Communications Chairman Kevin Martin is proposing to reform the multibillion-dollar "intercarrier compensation" system, the byzantine menu of charges that telecom carriers pay to access each other's networks. This happens, for example, when a customer of one phone company calls someone who lives in another company's territory.

Martin's plan would also make major changes to the $7 billion-plus Universal Service Fund, a federal program that subsidizes telecommunications service in rural and poor communities through a surcharge on long-distance bills.

Martin, one of three Republicans on the five-member commission, circulated his proposal to his colleagues late Tuesday so the commissioners can vote on it at a Nov. 4 meeting.

Intercarrier compensation reform is a high priority for much of the telecommunications industry. Under the complex current system, the charges that phone companies pay to connect calls with each other's networks vary based on the type of carrier involved, the type of network traffic and the distance that the traffic travels.

AT&T Inc., for one, has argued that the present system is irrational and based on obsolete regulatory distinctions. Many of those concerns have been echoed by other big telecom companies, including Verizon Communications Inc. and wireless carriers such as Sprint Nextel Corp.

Martin noted in an interview with The Associated Press that the current setup also leads carriers to send traffic along inefficient routes to either game the system or minimize access charges. Those charges range from less than a penny to several cents per minute.

But some of Martin's proposed changes concern consumer advocates. In particular, they question how the FCC would move away from the complicated menu of access charges and shift toward uniform rates. Because the new rates would be lower than what some phone companies generally receive now, those companies could recover at least part of their lost revenue — $4 billion industrywide — by increasing fees on consumer phone bills, including "subscriber line charges."

The subscriber line charge appears on local phone bills, and is currently capped at $6.50 per month for consumers by the federal government. Martin is considering lifting that cap to $8 or $8.50.

Consumer advocates say Verizon and AT&T especially want a uniform, industrywide intercarrier access rate that would be well below current levels because they pay substantial fees to send calls onto the networks of rural carriers. In turn, the idea has run into significant opposition from many of those rural carriers, which rely on access charges for a big chunk of their revenue.

Under Martin's plan, consumers who live in rural areas could see some of the biggest phone bill increases since rural phone companies would have more lost access revenue to recover, said Ben Scott, policy director for the advocacy group Free Press.

David Bergmann, an attorney with the Ohio Consumers' Counsel and chairman of the telecom committee for the National Association of State Utility Consumer Advocates, believes phone companies are pushing for intercarrier compensation reform for another reason, too. With so much traffic moving off traditional telecom lines and onto wireless and Internet networks, whose providers pay lower or no access fees, phone companies are watching their access fee revenue shrink. An increase in subscriber line charges paid by consumers would help offset this.

"This would be a guaranteed recovery of lost revenue. But there should be no guarantee for any of this," Bergmann said, citing other services the phone companies sell, such as caller ID, to generate revenue.

Martin insisted that phone bills will not necessarily go up because of his plan. Even if subscriber line charges increase, he contends, long-distance rates should go down as access charges decline.

That assumes, however, that phone companies would pass the savings in access charges on to their customers.

Martin's proposal also includes significant changes to the Universal Service Fund, which subsidizes phone coverage in parts of the country where service would otherwise be prohibitively expensive.

For one thing, Martin wants to tap the fund to help rural carriers offset lost revenue from access fees. He also wants to require carriers to use Universal Service money to invest in broadband networks in parts of the country that lack high-speed Internet connections and innovative wireless services.

"Today and especially in the future, ensuring that everyone has access to broadband is critical," Martin said.

Depending on the definition of high-speed access, broadband is available to as many as 90 percent of American households. Slightly more than half actually buy it. A recent study by the Pew Internet and American Life Project found that high prices or a lack of interest keep many potential broadband subscribers on the sidelines.

Jim Kohlenberger, executive director of the VON Coalition, which represents Internet calling companies, argues that the current intercarrier compensation and Universal Service rules actually discourage companies from investing in broadband since the regulations instead subsidize traditional voice services.

Martin wants to reform Universal Service in other ways too. The fund is facing mounting pressure since the revenue base that supports it is shrinking as wireless services, e-mail and Internet calling replace the old-fashioned long-distance calls that have traditionally subsidized the program. Yet the fund itself continues to grow, driven in large part by payments to wireless carriers.

So Martin is backing a plan to broaden the fund's revenue base by requiring any device with a working telephone number to pay a flat Universal Service fee of $1. At the same time, he is considering options to rein in ballooning Universal Service payouts, such as reducing the payments wireless carriers can receive, since wireless systems can cost less to build than landline networks.

Another idea is to launch a "reverse auction" that would award Universal Service funding to carriers that can build broadband networks at the lowest cost in places where the existing carrier won't provide high-speed Internet access.

Stepping back, Scott of Free Press said he might support Martin's proposals — even consumer phone bill increases — as long as the result is reasonable high-speed Internet for the entire country.

"Twenty-first century communications policy," he said, "must be rooted in the delivery of universal, affordable broadband."

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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