The programs, authorized last year by the Telecommunications Act of 1996, will provide special discounts to certain types of telecommunications subscribers, including schools, libraries, health care providers and low‐income subscribers. They will also allow rural areas to continue to receive service at below‐cost rates. The cost of the subsidies will be paid for with new fees, to be assessed by the FCC, on telecommunications services.
The total cost of these funding programs has not yet been determined. Some analysts have estimated funding levels of approximately $5 billion per year, including about $2.5 to 3 billion for schools, libraries and health care providers alone. To put the total figure in context, $5 billion is almost the total annual outlay for federal farm subsidies or the Environmental Protection Agency. In current dollars, it approximates the total federal cost of Medicaid in that program’s first year.
Unlike other federal spending programs, these programs will be established not by Congress, but by the FCC, an independent federal regulatory commission. As a result, the costs and expenditures of the programs will not be subject to the annual federal budget process. They will not appear in the budget, will not be reviewed by the budget or appropriations committees and will not be voted upon by any elected official..
Given the magnitude of the expected subsidies and the unique process by which they are to be funded, we believe the FCC’s decision is critical for taxpayers and consumers. Ideally, the plan should be sent back to the drawing board and replaced by one that reduces or eliminates, rather than increases, subsidies in the dynamic telecommunications market. Short of that, there are some specific steps the FCC can take to limit the potential harm caused by these new programs: