As Broadband Networks Head to the Country, Price Increase Looms

Dennis Faas's picture

Telecommunications reforms could bring broadband service to even more American rural areas, but there are fears the changes could also mean nationwide increases in phone charges.

The Federal Communications Commission is proposing changes to two existing systems: one, the 'intercarrier compensation' scheme, governs how telephone companies split the call revenues when one firm's customer phones somebody in another firm's region.

The other is the Universal Service Fund, under which a portion of long-distance phone call revenues is used to pay some of the costs of phone and Internet services in rural areas which are often too distant for phone carriers to run a profitable service. (Source:

FCC Chairman Kevin Martin says he'd like to see the intercarrier compensation scheme greatly simplified, preferably with much more standardised rates. He believes that the current arrangements are so complicated that some firms deliberately put calls through inefficient routes so they can get a better share of the call charge.

There are two concerns about such reforms: one, phone companies overall would get less money from calls, which would lead to pressure on the FCC to raise the maximum monthly service charge for having a phone line. Martin says he's considering raising it from the existing $6.50 to as much as $8.50. One consumer group says national phone companies are desperate to get these rises anyway because they are losing much of their revenue from call charges as people switch to cell phone or Internet-based phone calls.

A second worry is that rural firms would be particularly hard-hit by changes to the intercarrier compensation scheme because such payments make up a much higher proportion of their revenues. Martin suggests some of the money from the Universal Service Fund be used to compensate such firms. He also argues that, rather than the fund only getting money from phone calls, it should also receive a flat $1 licence fee on every telephone, whether fixed-line or cellphone. (Source:

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