Federal regulators on Thursday agreed to temporarily cap a growing subsidy program that paid nearly $1.2 billion last year to cell phone companies that do business in rural areas.

The Federal Communications Commission voted 3-2 along party lines to limit payments to wireless carriers from the Universal Service Fund, which is supported by a tax on the phone bills of most Americans. The cap will remain in place until the commission passes a comprehensive reform package, which is in the works.

The move is poor news for rural cellular carriers who rely on such payments for a substantial part of their revenue, but it benefits big telephone companies like Verizon Communications Inc. and AT&T Inc., whose customers are the largest contributors to the fund.

AT&T is additionally a major recipient of such wireless subsidies, but agreed to a cap as a condition of its acquisition of

Dobson Communications Corp. last year. The top recipient of such subsidies, Alltel Corp., had additionally agreed to a cap as part of its buyout by a private investment group.

Regulators hope the decision will slow the increase in fund charges on telephone bills and keep the program sustainable.

The fund was created by Congress in 1996 as part of an overhaul of the nation’s communications legislation, which says all Americans should have access to telecommunications services at comparable rates.

To do that, carriers that do business in rural areas and their customers are subsidized by the fund.

The fund itself is supported by a tax on long-distance and regular subscriber line charges paid by wireless, Web and traditional phone customers. The amount usually adds up to a few dollars per month, per bill, depending on calling patterns.

Orginal post by Top Tech News