The
Universal Slush Fund: Or How Out of Control
is the Government Phone Tax?
It’s
time for a “needs” based system, not a “greed”
based slush fund.
Why
is Beaver Creek getting over $10,000 a line in subsidies?
By
Bruce Kushnick and Alex Goldman
The
Universal Service Fund (USF) has always has always had lofty, public
interest goals: To make sure that all Americans have phone service,
to help low income families pay for phone service, to help schools and
libraries pay for phone and Internet, and
similar programs that are supposed to help rural areas, the poor,
and children.
And
we support all of these goals. Unfortunately, at a hefty 13%-15% tax
on interstate phone services, billions of dollars earmarked for that purpose are
diverted to corporate profit and dividends; the USF is not based on
the corporate need, but on corporate greed. The USF is out control.
And
we don’t like being charged by AT&T, Verizon and the host of other
phone companies for other peoples' phone bills.
The
USF is not audited for basics like the companies’ total revenue and
profits, much less the monies collected from services that are going
over the line that is being subsidized. Virtually every other service
besides ‘basic service’, from directory calls or calling features or
DSL or broadband or anything else is not examined. Worse, no audits
are done of whether the companies are paying the right amount back to
the USF fund, and very few audits are done for fraud, waste and other
related items. The FCC, therefore, cannot know whether the companies actully need the money or even how they use the funds.
Rather than crack down on waste, the FCC is considering growing this
fund in the name of broadband while keeping in place a policy of not
monitoring its effectiveness or use.
Let’s
put some facts on the table.
Congress
recently asked the FCC to answer basic questions about the USF. The
data the FCC provided shows that the largest earners of USF funds are
Verizon and AT&T.
Right now about $8 billion dollars are collected
and the majority goes to the “high-cost” fund. (Other areas are for the
“E-rate” --- telecommunications discounts to schools & libraries,
Lifeline and other assistance programs.)
Much
of this high-cost money goes to Verizon and AT&T, whose 200+ companies
got over $3 billion from the Universal High Cost fund during the years
2007-2009.
http://www.teletruth.org/docs/USFtopATTverizon.pdf
They
are also the largest recipient of E-Rate, the fund designed to bring
service to schools and libraries.
To
top it off, each year, the phone companies collect more USF funds than
they spend by about $170 million dollars each year.
http://energycommerce.house.gov/documents/20100708/Request2.pdf
It
should also gall you to know that the FCC and USAC (Universal Service
Fund Administrative Corporation)
keep lying to the American public, claiming that "telecommunications providers"
fund the USF, when in fact the USF is a tax on customers’ bills ---
a pass through tax where the phone companies actually make money from
the ‘float’ of collecting USF then keeping it for awhile.
http://www.usac.org/about/universal-service/
The
USF goes to companies that are wealthy and are paying dividends to shareholders,
paying millions in salaries to key executives, and even paying hundreds
of thousands to those who have retired return as consultants.
http://blog.thecorporatelibrary.com/blog/2010/05/executive-compensation-concerns-at-verizon.html
And
the USF does not promote competition. The FCC admitted that even in
the areas where it funds the largest number of phone companies, price
rises are significant year after year.
http://energycommerce.house.gov/documents/20100708/Request6.pdf
An
out of control slush fund may be an understatement.
The
FCC’s Office of Inspector General’s semi-annual
report in 2008 claimed that there was a “100% erroneous payment level
in the federal universal low income support program” --- meaning paying
too much out, not too little. The FCC has since stepped back from that
analysis but there was no final report we could find. Meanwhile
the December 2008 audit report for the Schools & Libraries fund found
an error rate of 13.8% representing overpayments of $232 million dollars.
An agency program is considered at risk if the “erroneous payment
rate” exceeds 2.5% or $10 million dollars.
A
Bureaucracy Without Accountability
In
2000, the USF was funded by a 3.9 percent tax on all interstate calls
and services. That has risen to 15.3 percent by Q2 2010 (but the rate
can vary from quarter to quarter).
USF
money funds many things besides phone lines, such as dividends and salaries
at certain lucky small rural phone companies, whose per line subsidies
reach over $10,000 per year. Here’s the FCC report on the listings of
these massive USF per line recipients:
http://www.teletruth.org/docs/USFPerline.pdf
An example? Beaver Creek phone cooperative received
$11,892 per line. . This amount
is unfathomable when the average local bill, according to the FCC data
is $25 a month (the last FCC data is from 2008).
The
company states: “Beaver Creek Cooperative Telephone Company (BCT) is
a member-owned organization that provides friendly, high-quality, professional
service at reasonable rates to the Beaver Creek and
Thus,
it is clear that the company has revenues from other sources: broadband,
long distance, Internet, even wireless and that the USF is paying for these ancillary
services. They are not paid for by a successful, competitive telecommunications
company – they are provided by the
Beaver
Creek even can pay dividends and “awarded over $230,000 in scholarships
to local families the past 16 years.”
http://www.bctelco.com/images/Minutes%202009%20Annual%20Meeting.pdf
In
fact, the company’s
pricing to the customers is cheaper than many other places in the
Conclusion:
Fix The Slush Fund.
We
want the USF to be ‘needs’ based, not ‘greed’ based. We want an investigation
into the actual cost of these lines --- all revenues, all expenses and
all profits from the services over the subsdizied line.
Once
each line is installed, does it really cost $10,000 per year to provide
service, or is pure profit, taken from the taxpayer? Does
the long distance, DSL/broadband, Internet and every other service get
a free ride at our expense?
Having
a “needs’ based for USF is not even a radical idea. When a customer
calls to order “Lifeline” service, which is partially funded through
USF, the customer must prove they are at or below the poverty line or
have some other reason to be subsidized.
And that’s only for a few bucks a month. We’re giving these companies
billions with no proof of actual need.
We
demand that the USAC and the USF be held accountable for results. Taxation
without representation is wrong. Investigate now.