The FCC today postponed a scheduled vote to adopt a new intercarrier compensation system, which was to be part of its general plan to overhaul federal universal service funding. The FCC plan would have reduced the payments carriers who serve cities and suburbs pay to rural providers for completion of calls. These highly complex tariff arrangements are designed to subsidize the higher cost of providing service top sparsely populated areas. The system has been breaking down, in part because IP technology allows carriers disguise the origin of calls and the carriers handling them. While rural carriers say urban service providers have been contributing to such “phantom traffic,” urban service providers accuse rural companies of rent-seeking and “traffic pumping”, that is, aggressively pursuing teleconferencing bridge companies, adult chat line and dial-a-porn services to terminate call servers in their rural service areas. These operations greatly increase call volume into rural service areas, increasing intercarrier payments commensurately. More troubling is the way rural carriers, which continue to consolidate, use the intercarrier payments and other USF subsidies to shore up their bottom line. These aren’t the Mom and Pop telephone cooperatives of yesteryear, they are publicly-traded corporations which, as they grow in size, seem less and less in the phone business and more and more in the subsidy business. Sad to say it was not concerns over subsidies and rent-seeking that halted the vote. It was, for the most part, pressure from state utility commissions, represented by the National Association of Regulatory Utility Commissioners, that were alarmed over the FCC’s attempt to push through the plan without more public comment. Nonetheless, while the FCC’s plan has its merits, the universal service issue can’t be addressed piecemeal. It needs to start with a top-down strategy, preferably one that begins with the assumption that the competitive market can deliver universal broadband service to most areas and places the burden on the rural carrier of demonstrating the need for a subsidy or government loan.