• by Wendy Davis  @wendyndavis, February 7, 2011

In hopes of expanding broadband availability to rural parts of the country, the Federal Communications Commission is preparing to revamp an $8 billion program that subsidizes telephone service to remote areas, says Chairman Julius Genachowski. 

The Universal Service Fund "must be fixed -- modernized and streamlined for the 21st century," Genachowski said during a speech at the Information Technology and Innovation Foundation.

The current telephone subsidy program helps defray the cost of providing service to rural parts of the country. But the system is plagued by inefficiencies, and in some cases, exorbitantly high reimbursement rates. In some areas, the fund pays as much as $20,000 per household per year for telephone service.

On Monday, Genachowski proposed moving the subsidies to companies that will provide broadband access. "In the 21st century, high-speed Internet, not telephone, is our essential communications platform, and Americans are using wired and wireless networks to access it," Genachowski said.

Up to 24 million Americans live in areas that lack broadband service, according to FCC estimates.

Genachowski said the FCC will vote on Tuesday on proposed rule making for a two-stage modernization process. The first step involves shifting money "that's being used inefficiently and without accountability" to the new Connect America Fund. After a transition period, the FCC will stop backing telephone networks and will instead subsidize high-speed Web access -- which in itself can substitute for telephone lines through VoIP applications.

"We will make sure that all Americans continue to have access to voice service and can make calls from their homes," Genachowski said. "Voice will be one application that consumers can use over their fixed or mobile broadband connections." While not all of the details have emerged, the FCC also is expected to give subsidies to the Internet service providers who win "reverse auctions" -- meaning they promise to build out broadband networks for the least amount of money per household.

Advocacy group Free Press says that part of the plan could prove problematic. "If all you're focusing on is cost to serve a household, you don't ask questions like, 'What price are they going to be charging those households?'" says research director S. Derek Turner. He adds that Free Press has urged the FCC to solicit requests for proposals for the subsidies rather than use a reverse auction process.