WASHINGTON-Federal Communications Commission Chairman Julius Genachowski said Thursday the agency plans to overhaul an $8 billion federal phone subsidy program, calling it "broken."
Mr. Genachowski said the overhaul will include changes in how money from the federal Universal Service Fund is distributed to telecommunications companies as well as changes to a federally regulated rate system for phone companies.
"Broadband has gone from being a luxury to a necessity," Mr. Genachowski said in a speech Thursday. He offered few specifics about the plan during his speech.
FCC officials want to overhaul the system so that it pays for new broadband lines and service in rural areas without high-speed service instead of covering the costs of phone service. The agency estimates about 18 million American households don't have access to high-speed Internet service.
Mr. Genachowski said his proposed changes would encourage phone companies to bring high-speed Internet to half of U.S. households without service within the next five years.
Consumers pay a monthly charge on their phone bills to fund the Universal Service Fund, which subsidizes phone service in rural areas and for low-income Americans. The fund has ballooned over the years as more wireline and wireless phone companies have asked for subsidies to cover services.
Mr. Genachowski also said the FCC intends to modernize the intercarrier-compensation system, which sets fees telecommunications companies pay each other for carrying or delivering phone calls. The system was designed before lower-cost Internet phone services took off.
Large phone companies, which have advocated many of the changes Mr. Genachowski announced Thursday, mostly applauded his plan, saying it was time for the FCC to change the system. "Absent reform, these rules will simply loiter on to foster more litigation and arbitrage and ultimately stifle innovation and the benefits of broadband for consumers," said Bob Quinn, AT&T Inc.'s senior vice president of federal regulatory affairs, in a statement.
USTelecom, the telecom industry trade group, voiced some concerns about the plan, which fundamentally changes the economics of the telecom industry, mostly because details of it are still not available.
The FCC's four commissioners are scheduled to vote on the plan Oct. 27, although some of them are likely to seek changes to Mr. Genachowski's plan before then.
Consumer groups have complained that changes to the intercarrier-compensation system may result in higher costs for consumers because it will allow phone companies to raise a monthly service charge above the current $6.50 per month cap. State regulators have also voiced worries that the FCC's plan may decrease their consumer protection authority.
Consumers in rural areas may see their phone bills rise, since Mr. Genachowski said phone companies will be allowed to "modestly rebalance rates in areas" where consumers are paying less because of federal subsidies. Mr. Genachowski's aides declined to offer more details about how many consumers might be affected or how much their monthly bills may rise.
The FCC should not "allow companies to raise landline phone rates, which hit seniors and underserved communities especially hard," said Parul Desai, policy counsel for Consumers Union, publisher of Consumer Reports magazine.
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WASHINGTON-Federal Communications Commission Chairman Julius Genachowski said Thursday the agency plans to overhaul an $8 billion federal phone subsidy program, calling it "broken."
Mr. Genachowski said the overhaul will include changes in how money from the federal Universal Service Fund is distributed to telecommunications companies as well as changes to a federally regulated rate system for phone companies.
"Broadband has gone from being a luxury to a necessity," Mr. Genachowski said in a speech Thursday. He offered few specifics about the plan during his speech.
FCC officials want to overhaul the system so that it pays for new broadband lines and service in rural areas without high-speed service instead of covering the costs of phone service. The agency estimates about 18 million American households don't have access to high-speed Internet service.
Mr. Genachowski said his proposed changes would encourage phone companies to bring high-speed Internet to half of U.S. households without service within the next five years.
Consumers pay a monthly charge on their phone bills to fund the Universal Service Fund, which subsidizes phone service in rural areas and for low-income Americans. The fund has ballooned over the years as more wireline and wireless phone companies have asked for subsidies to cover services.
Mr. Genachowski also said the FCC intends to modernize the intercarrier-compensation system, which sets fees telecommunications companies pay each other for carrying or delivering phone calls. The system was designed before lower-cost Internet phone services took off.
Large phone companies, which have advocated many of the changes Mr. Genachowski announced Thursday, mostly applauded his plan, saying it was time for the FCC to change the system. "Absent reform, these rules will simply loiter on to foster more litigation and arbitrage and ultimately stifle innovation and the benefits of broadband for consumers," said Bob Quinn, AT&T Inc.'s senior vice president of federal regulatory affairs, in a statement.
USTelecom, the telecom industry trade group, voiced some concerns about the plan, which fundamentally changes the economics of the telecom industry, mostly because details of it are still not available.
The FCC's four commissioners are scheduled to vote on the plan Oct. 27, although some of them are likely to seek changes to Mr. Genachowski's plan before then.
Consumer groups have complained that changes to the intercarrier-compensation system may result in higher costs for consumers because it will allow phone companies to raise a monthly service charge above the current $6.50 per month cap. State regulators have also voiced worries that the FCC's plan may decrease their consumer protection authority.
Consumers in rural areas may see their phone bills rise, since Mr. Genachowski said phone companies will be allowed to "modestly rebalance rates in areas" where consumers are paying less because of federal subsidies. Mr. Genachowski's aides declined to offer more details about how many consumers might be affected or how much their monthly bills may rise.
The FCC should not "allow companies to raise landline phone rates, which hit seniors and underserved communities especially hard," said Parul Desai, policy counsel for Consumers Union, publisher of Consumer Reports magazine.
Write to Amy Schatz at Amy.Schatz@wsj.com