The Federal Communications Commission will decide today how to reform the Universal Service Fund, for decades a source of revenue for rural telephone companies and designed as a way to fund networks in underserved areas.

In a speech yesterday, FCC Chairman Julius Genachowski said the $8 billion Fund is fundamentally flawed, and now offered perverse incentives that were accomplishing the opposite of what it was intended to do.

The USF was set up in 1934 to fund phone service in rural areas, where it is expensive and difficult to provide service. Among its provisions are payments between carriers, known as intercarrier compensation, and direct subsidies to phone carriers.

Genachowski noted in his remarks that up to a third of Americans are without access to broadband service, largely because the infrastructure isn't there. Reform of the Universal Service Fund is one way to accomplish that goal.

Among the changes that will be discussed are altering the intercarrier compensation formulas to move away from per-minute charges. A framework for discussion released by the FCC says that the system is premised on basic phone service, when that doesn't necessarily fit twenty-first century realities in which mobile phones and voice over Internet protocol are also available. The plan is to eventually eliminate the intercarrier fees altogether.

Consolidating the five different authorities that administer the USF into a single one will also be discussed.

One thing that is not on the table is a new tax on broadband service, say people familiar with the matter. Another topic will be what authority the FCC has to impose rules. Several phone companies, notably Verizon, have mounted challenges to the FCC over the network neutrality rules the agency has put in place. A decision from the U.S. Court of Appeals is pending, but it will likely move to the Supreme Court.

For its part, Verizon issued a statement saying that it looks forward to working with the FCC, but did not provide details. The United States Telecom Association, a trade group, also said it supports modernizing the USF.

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