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Affordable phone service for rural customers is at stake because of the threats to the universal service system.  The universal service system helps keep basic rates affordable when there are small numbers of customers scattered over great distances. Threats to universal service funding and programs could result in rural consumers paying significantly higher local phone rates.

Universal Service Means Everyone

Support for rural telephone networks makes up the majority of universal service funding, some $3.5 billion in 2004, according to the Universal Service Administrative Company. Support for rural telemedicine programs amounted to another $1.1 million in 2004.  Access to high quality, affordable telecommunications services is necessary to rural community’s social and economic development, according to Benton Foundation research .

Government agencies, schools and businesses ranging from main street retailers to farmers, cannot be successful without access to telecommunications services that many of us take for granted. Not only are high speed services less available in rural areas, in some places even sending and receiving high quality faxes can be a challenge. 

Threats to Rural Phone Services

In many parts of the country, universal service funds are necessary to maintain affordable service.  However, recent developments threaten access to universal service funds. Egregious examples of waste and fraud by a few rural telephone companies have brought criticism to the program and calls for reform. Competitors such as wireless phone companies are seeking access to universal service funding in order to provide service to rural areas. 

Perhaps the greatest threat is the Federal Communications Commission's order declaring Internet telephony an interstate service which has the effect of prohibiting state regulators from imposing universal service fund obligations on these providers.  As consumers move from traditional phone service to Internet phone service, state universal service funds will shrink. Consumers Union, among others, is working to encourage VoIP carriers to pay into the Universal Service Fund.

The challenge for rural communities is to find a way to introduce some competition into their area without undermining the universal service support system.  At the same time, communities and rural phone companies must embrace programmatic reforms that ensure stronger oversight and accountability over the billions of dollars of funding flowing to rural areas.

The FCC has taken some steps to improve rural telephone services but there are many more things that can be done.