AT&T was insanely profitable
in 2009, with $34.4 billion in revenue and $12.5 billion in net income.
The company even returned most of this cash ($9.7 billion) to investors
as dividends. So why did the US government direct $435 million into the
company's coffers?
Thank (or blame) the Universal
Service Fund, which last year collected $7.2 billion dollars from phone
companies—charges that are passed on to consumers, often as a separate
line item on their bills. The money amounts to a 14 percent tax on
phone service. It pays for four things: telephone service to
expensive-to-wire places, subsidies for low-income users, computers and
Internet access for schools, and telecommunications services for rural
health care providers.
Most of the money goes to
install and maintain "high-cost" phone service, usually in rural areas.
The House Energy and Commerce Committee is investigating the USF, a notorious pit of inefficiency and error—for
instance, half the high-cost money paid out in 2009, a full $2 billion, went to "rate
of return" telcos who are allowed to make an 11.25 percent profit.
If they don't, the government makes up the difference.
The FCC has now supplied more
detailed USF data to Congress. Among the revelations: AT&T has
pulled down more than $1.3 billion in USF money over the last three
years, while Verizon got $1.2 billion and CenturyTel picked up $930
million. In return, the companies must provide phone service to anyone
in their service area who wants it.
Outrageous? Possibly. The
program has been a useful one, making telephone service in the US truly
ubiquitous, but critics have always charged that telcos get far too
much cash, or got cash for projects they would have done anyway.
Cecilia Kang at the Washington Post pointed out some of these
complaints last week.
And the new FCC documents
certainly provide fodder for critics.
$17,763 per line
There's the case of Weavtel, a
tiny Washington state telco that raked in $301,966 in USF money in
2009—all in order to support 17 copper telephone lines. That's an
average of $17,763 per line.
In 2008, the company was paid
$188,382 for the 15 phones lines that it serviced, for an average of
$12,559 per line.
In 2007, Weavtel supported 14
lines at an average of $16,621 per line.
Ponder these numbers for a
moment. The company had already built the local exchange infrastructure
needed to handle phone calls in 2007, but it still received almost
$500,000 over the next two years—and it added service to a grand total
of three lines in that time.
In three years, the $700,000
spent on phone service for these 17 residents could have been used
instead to simply buy sat phones and satellite Internet—and pay for
service—for the remote community of Stehekin, a place so remote that it
is bordered by a national forest and is accessible only by boat.
In 2005, Weavtel tried to begin
the project and ran into local opposition from Stehekin residents (the Seattle
Times ran a nice profile of
the town at the time, explaining the controversy over the phones).
In a letter to
residents (PDF), Weavtel noted "that there is a difference of
opinion concerning the number of people who want telephone service. It
is also clear that some people do want service. We have made a business
decision that the number of people who do want service makes this a
viable business opportunity."
Seventeen people paying monthly
phone bills isn't much of a "business opportunity"... not unless the
government directs a few hundred thousand dollars a year toward the
project (and lets you run your towers and lines over federal parkland,
as the company requested). Weavtel, in fact, collected the most money
per line of any telco in the entire US in 2009.
But still, a case might be made
for service to Stehekin, which has never had a local exchange. The FCC
numbers show, however, that plenty of USF money is also being paid out
to local telcos in areas that already have plenty of cell phone
coverage. It's a policy that makes increasingly little sense for a
program whose basic goal is mere voice connectivity.
Terral Telephone Company serves
rural Oklahoma, and in 2009 it took home $1.6 million in USF money to
provide service to 246 lines. That's $6,563 per line, per year, one of
the highest rates in the country.
Unlike Weavtel, though, Terral's
customers have a choice. The FCC points out that the company's service
area is 100 percent covered by AT&T, Sprint, and Verizon. T-Mobile
has 95 percent coverage. None of these carriers received USF
"high-cost" support for this area in 2009.
Reform a-comin'
The FCC hopes to (finally)
reform many of the worst elements of the USF system. In its National
Broadband Plan, the agency argued that "rate of return" carriers should
be eliminated and switched to an incentive-based scheme instead.
"Rate-of-return regulation was not designed to promote efficiency or
innovation," says the plan, noting that it was product of the 1960s and
a world with a single monopoly telco.
It also wants Sprint and Verizon
to "reduce the High-Cost funding they receive as competitive ETCs to
zero over a five-year period as a condition of earlier merger
decisions." (Both companies have already agreed to this, which could
save $500 million a year.)
Just as importantly, these huge
amounts of money won't be used to install archaic technology. Instead,
the FCC wants to transition USF funding to support broadband and fully
converged IP networks instead of simple POTS service. These proposals
have been controversial with just about everyone, since they propose
only modest speeds of 4Mbps and could also reduce money to existing
telcos like Weavtel and Terral.
