Thursday, June 16, 2005

The FCC Finally Looks at the USF

A decade of fraud and billions in misdirected funds later...
Written by Karl Bode
A significant portion of your monthly DSL and landline bill goes to the Universal Service Fund (USF). Critics across ideologies have long charged the system is corrupt, dysfunctional, poorly managed, and/or a slush fund for the bells. After years of debate, the FCC has announced they'll finally take a look.

The USF was created as part of the 1996 Telecom Act, with the intention of subsidizing affordable telecom services to the nation's less connected schools and communities. The act declared that providers of telecommunications services should contribute to the fund in an "equitable and nondiscriminatory manner".

When the FCC later ruled cable was an "information service" and largely exempt from contributing, that idea was seemingly thrown out the window. The ruling fueled legitimate complaints from the bells, and forged the Brand X court case, which challenges that ruling and should be decided on by the Supreme Court this month.

Even if there were equal contribution, the fund is so poorly managed, nobody knows where the money goes once it leaves your pocket. The system is plagued with little documentation, and even less FCC oversight.

Bell critic Bruce Kushnick complains that lack of oversight has allowed the USF to become a massive slush fund for the telecom industry, where money goes in - but nobody knows (or cares) where it comes out. Kushnick claims that roughly 60% of the total collected goes right back to the bells as profit; he's long championed a complete USF audit.

Lets assume - for the sake of argument - the money leaves your wallet, works its way through the Bell coffers untouched, and winds up where it's supposed to.

Forty percent of USF fees go toward funding the E-Rate program, which is supposed to wire schools with broadband. The program instead has been exposed as a poster-child for fraud and waste (see Christian Science Monitor).

A recent study by the GAO slammed the FCC for mismanaging the multi-billion dollar E-rate program. Of particular concern was the complete lack of any monitoring system to ensure it works. Of 122 audits done over the past year, about a third revealed substantial violations. School officials in Puerto Rico spent $101 million to wire only nine schools. In other cases hardware was purchased, then mysteriously disappeared.

So a decade and billions in misdirected funds later, the FCC announces it's time to take a look at the USF (pdf). Good thinking. But, like Sean Connery in the Untouchables, are they willing to go all the way?