WASHINGTON — The chairman of the Federal Communications Commission on Thursday outlined a plan to transform the Universal Service Fund, an $8 billion fund that is paid for by the nation’s telephone customers and used to subsidize basic telephone service in rural areas, into one that will help expand broadband Internet service to 18 million Americans who lack high-speed access.
The chairman, Julius Genachowski, said the overhaul of the fund would eliminate waste and inefficiencies in a program that is outdated, unfair and not accountable to the consumers who support it through monthly assessments on their phone bills.
An F.C.C. official, who spoke on the condition of anonymity to avoid overshadowing the chairman’s address, said the amount that consumers paid each month to finance universal service was unlikely to fall and could increase. Phone companies are assessed a percentage of their revenue from interstate and international service, and most pass along those charges to customers. The contribution rate has more than doubled over the last decade, to 15 percent currently, up from 7 percent in 2001.
Telecommunications industry groups and consumer watchdog organizations offered cautious support for the plan. Though Mr. Genachowski presented an overview of a new system, he offered few details on how it would affect phone companies and broadband providers.
“Broadband has gone from being a luxury to being a necessity for full participation in our economy and society,” Mr. Genachowski said in a speech Thursday at the agency’s headquarters. “This plan will bring enormous benefits to individual consumers, our national economy and our global competitiveness.”
The plan would provide for broadband in hundreds of thousands of homes and businesses beginning next year, Mr. Genachowski said, and would cut by half the number of Americans without broadband access by 2017. “And it will put us on the path to universal broadband service by the end of the decade,” he added.
The plan would transform the largest component of the fund, which provides $4.5 billion annually to subsidize residential phone service in rural areas that would otherwise be uneconomical for companies to serve.
The money would instead go to a new Connect America Fund, providing both wired and wireless Internet access to homes, businesses and “anchor institutions” like libraries and public service organizations.
Subsidies for landline telephone service will be phased out as broadband is expanded, but the F.C.C. chairman said he believed that the development of Internet-based phone services like Skype would supplant traditional telephones for many consumers.
For the first time, the Universal Service Fund will be put on an annual budget, rather than being allowed to spend freely, Mr. Genachowski said, and competitive bidding will be used to determine which companies receive subsidies — also a first.
Part of the money will be used to establish a Mobility Fund, which would extend and sustain the latest generation of mobile broadband service along and around more than 100,000 miles of roadways around the country, “where millions of Americans live, work and travel,” he said.
Also outlined Thursday were changes to the Intercarrier Compensation program, which provides subsidies for local phone companies through an assessment on long-distance calls.
That system, Mr. Genachowski said, “actually discourages investment in 21st-century Internet protocol networks, because companies fear losing the subsidies they receive for connecting calls using traditional telephone technology.”
Details on the full plan outlined by Mr. Genachowski are being circulated to the three other F.C.C. commissioners. They can suggest revisions and amendments to shape the final regulations, which will be voted on by the commission on Oct. 27.
Because of the lack of details, consumer and industry groups generally said they would have to review the final plan before reacting fully to the proposals.
“We applaud Chairman Genachowski for his commitment to connecting all Americans to high-speed broadband,” said Walter B. McCormick Jr., president and chief executive of USTelecom, a broadband industry trade association. “While we have some concerns with what he outlined today, we appreciate that he and his fellow commissioners are looking to find the right balance that will benefit consumers, advance the public interest, accelerate broadband investment and create jobs.”
Parul P. Desai, policy counsel for Consumers Union, similarly supported the initiative, but she said that the F.C.C. should not allow companies to raise the rates they charge for landlines, because many seniors and lower-income households will continue to depend on that service.
“Broadband companies are generating huge revenues while many consumers are struggling to make ends meet,” Ms. Desai said. “The F.C.C. shouldn’t allow the industry to pay for expansion on the backs of consumers.”
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