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GAO: Web Could Whack Phone Fund

2/12/2002 3:42 AM Eastern

Growing use of the Internet to complete voice communications could siphon
funding from the program designed to keep local phone rates affordable
nationally, the General Accounting Office concluded in a report released
Monday.

The GAO said the threat to the universal-phone-service subsidy was not
immediate, but the trend was clear if voice services migrate to the Internet in
a substantial way.

'As these new voice services gain popularity, concerns exist of whether
federal funding levels for universal service might eventually decline,' the GAO
said.

The GAO, the investigative arm of Congress, prepared the 65-page report for
Rep. Edward Markey (D-Mass.), the senior Democrat on the House Subcommittee on
Telecommunications and the Internet.

Federal and state programs keep local phone service affordable nationwide.
Generally, urban areas subsidize rural areas and business lines subsidize
residential lines. Interstate telecommunications carriers and providers of other
interstate communications are required to contribute some of their revenue to
universal service.

According to the GAO, the problem facing universal service by Internet-based
providers of voice services is that the Federal Communications Commission has
classified Internet-access providers as information-service providers, which are
exempt from paying into the subsidy pool.

'As the deployment of IP-telephony [Internet-protocol] technologies moves
forward and more business and consumers begin to substitute IP telephony for
traditional telephony service, the question arises as to whether a decline in
the funding for universal service could result,' the GAO said.

The GAO added that the IP-telephony threat to universal service was still a
distant matter because experts that it consulted claimed, 'IP telephony
represents only a tiny percentage of current worldwide voice traffic.'

In a 1998 report to Congress, the Federal Communications Commission said it
was cognizant of IP telephony's exemption from universal service, and it would
not ignore whether the exemption should be removed or modified as IP telephony
grew in the market.

The FCC is expected to launch a rulemaking Thursday seeking public comment on
whether information-service providers -- especially Internet-access providers
that utilize their own transmission facilities -- should contribute a portion of
their revenue to the phone-subsidy fund.

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