Barton: Bloated USF Fund is Unsustainable $7 Billion and Growing, Telephone Subsidy Needs More Efficiency WASHINGTON - U.S. Rep. Joe Barton, R-Texas, chairman of the House Energy and Commerce Committee, issued the following statement today as part of a Telecommunications and the Internet Subcommittee hearing on reforming the Universal Service Fund: "Mr. Chairman, I support the hearing. I've looked forward to it for several months now and I'm glad that we have our expert panel of witnesses here today. "The Universal Service Fund as we know it today consumes more than $7 billion. B as in 'boy'. In 1996, when we passed the Telecommunications Act, that same fund spent less than $1 billion. So it's grown 7,000 percent, or something like that, in the last 10 years. In just one aspect of this program, the e-rate program, we've held numerous hearings in this committee and our oversight subcommittee and detailed the waste, fraud and abuse of that particular part of the Universal Service Fund. That's only a $2 billion program. The e-rate program is probably the one program in Universal Service that's in most need of reform but it's not the only one. "The high-cost fund has swollen considerably since the passage of the 1996 Telecommunications Act. In 1998, the fund distributed approximately one and a half billion. This year it's expected to distribute $4.2 billion. That's almost a $3 billion increase in less than eight years. We're probably going to hear from the Congressional Budget Office today that that particular fund is in jeopardy of growing even larger unless effective reforms are put into place. "There are important reforms that are necessary to rein in the high-cost fund. In my opinion, one would be that only one connection per household or business should be eligible for Universal Service Fund support. There's no reason that a telephone user who pays into the fund should have to subsidize extra phone lines in the house or a mobile phone in addition to a wireline connection. "Second, communications providers should receive support, if at all, based on the costs of the lowest-cost provider of telephone service in that particular area. Wireless carriers should receive universal service support. But they should do so based on the costs of putting up towers in rural areas and getting connections back to the local loop, not based on the cost of the existing wireline provider who has no incentive to control their costs. There is a perverse incentive today that exists in the high-cost program in which a wireless carrier gets as much money as a wireline carrier even thought their cost of service is considerably less. "In my opinion, this policy should be reversed. No provider should receive more support than what is necessary for the lowest-cost provider in an area to provide basic, voice-grade service. This is about making certain, or should be about making certain, that anyone in rural America can have at least one telephone. It shouldn't be about making sure that they have a gold-plated system and multiple subsidies on that one system. It's not about providing every house with cell phones, computer hookups and the opportunity to chat on two or three lines at once. "The growth that has occurred in the high-cost fund is unacceptable, unsustainable and unnecessary. With the right reforms, that particular program can be brought under control. This would ensure that the program can continue to do what it is supposed to do: provide people in rural areas with affordable voice-grade telephone service over one telephone line. "I look forward to working with the chairman and the rest of my colleagues to determine the best way to reform this program. Before I yield back, Mr. Chairman, let me give you some examples from my state of Texas. Sometimes I'm accused that I don't pick on the hometown team too much so I asked the staff to research Universal Service Fund in Texas. Let me give you some examples: Big Bend, Texas. Big Bend is out in West Texas, it's in Alpine, Texas. One of my former football players from Waco High School has a ranch out there. Big Bend Telephone has 6,000 customers. Last year, Big Bend Telephone Co., with 6,000 customers, got $9.6 million in federal Universal Service funds, $3.3 million in state Universal Service funds and $18 million in access fees. That's $28 million. Less than 5 percent of their revenue came from the local 6,000 subscribers. That utility posted a 12.8 percent return on equity last year. It paid its shareholders a $3 million dividend. That's a pretty good dividend. However, in 2002, it shelled out $13 million in dividends. It also runs a hunting ranch to entertain rural phone lobbyists at the cost of $80,000 a year. That's in West Texas. "Let's go up to the Panhandle of Texas where we have XIT Rural Telephone Cooperative. It serves 1,500 ranchers, farmers and others in the Texas Panhandle and I'm sure it does an excellent job. It did so well last year that it paid back in dividends more than the cost to charge its phone subscribers. It got by on only $2.6 million in federal subsidies last year. "I could go down to Houston, Texas. There is a subdivision out near Katy, Texas, which is one of the most affluent areas of West Houston. They set up their own, the subdivision set up its own telephone company, set it up so that it qualified for rural subsidies in a high-cost area. These are homes that go between $250,000 and a million dollars and they have their own cooperative there and they're getting huge federal and state subsidies. That's in my home state. Now I'm not saying that we shouldn't have some Universal Service Fund but the current system is gameable, it's not fair, it's out-of-date. If we can't kill it, we ought to really, really work together on a bipartisan basis to seriously reform it. With that, Mr. Chairman, I yield back." ####