"AT&T was insanely profitable in 2009, with $34.4 billion in revenue and $12.5 billion in net income. The company even returned most of this cash ($9.7 billion) to investors as dividends. So why did the US government direct $435 million into the company's coffers?
Thank (or blame) the Universal Service Fund, which last year collected $7.2 billion dollars from phone companies—charges that are passed on to consumers, often as a separate line item on their bills. The money amounts to a 14 percent tax on phone service. It pays for four things: telephone service to expensive-to-wire places, subsidies for low-income users, computers and Internet access for schools, and telecommunications services for rural health care providers.
Most of the money goes to install and maintain "high-cost" phone service, usually in rural areas. The House Energy and Commerce Committee is investigating the USF, a notorious pit of inefficiency and error—for instance, half the high-cost money paid out in 2009, a full $2 billion, went to "rate of return" telcos who are allowed to make an 11.25 percent profit. If they don't, the government makes up the difference.
The FCC has now supplied more detailed USF data to Congress. Among the revelations: AT&T has pulled down more than $1.3 billion in USF money over the last three years, while Verizon got $1.2 billion and CenturyTel picked up $930 million. In return, the companies must provide phone service to anyone in their service area who wants it.
Outrageous? Possibly. The program has been a useful one, making telephone service in the US truly ubiquitous, but critics have always charged that telcos get far too much cash, or got cash for projects they would have done anyway. Cecilia Kang at the Washington Post pointed out some of these complaints last week.
And the new FCC documents certainly provide fodder for critics.
$17,763 per line
There's the case of Weavtel, a tiny Washington state telco that raked in $301,966 in USF money in 2009—all in order to support 17 copper telephone lines. That's an average of $17,763 per line.
In 2008, the company was paid $188,382 for the 15 phones lines that it serviced, for an average of $12,559 per line."
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