Neil Grace, a spokesman for Chairman Julius Genachowski, said the commission only made the proposal “following the urging of Republican Commissioners and members of Congress."

"The Chairman remains unconvinced that including broadband is the right approach,” he said. Robert McDowell, the only Republican on the commission when the proposal was floated earlier this year, flatly rejected that he ever supported the idea. "I have never suggested taxing broadband Internet access," he told The Hill.

McDowell said he is skeptical that the FCC even has the legal authority to tax Internet service.

In April, the FCC suggested a number of ideas for reforming the fund's contribution system, including adding a fee to broadband Internet service. The commission also sought comments on taxing text messages, as well as levying a flat fee on each phone line, instead of the current system, which is based on a portion of the revenue from interstate phone calls.

A number of companies, including AT&T, Sprint and Google, expressed support for a broadband tax in comments filed with the FCC.

What started as a program with important goals (making sure rural farmers can make phone calls and ensuring the poorest among us can dial 911) turned into an unaccountable corporate slush fund. Today USF is an $8 billion annual program, nearly quadrupling in size since its inception, with the bulk of that increase going to landline and wireless phone companies.

Maybe this massive growth would be no concern if USF were a model program with a sterling reputation for efficiency. But it’s not. One recent study found that 59 cents of every USF dollar raised for rural networks was spent on administrative expenses and general overhead. A 2010 audit of the rural USF program found that one out of every four dollars sent to participating phone companies was an “overpayment,” with nearly a billion dollars unaccounted for.

AT&T says that “retail mass market broadband Internet access should be included” in the FCC’s tax, and Google “strongly supports expanding the USF contribution base to include broadband Internet access services,” even as it begs the FCC to exempt Google’s own voice telephony services from the USF tax.

"The Internet is not an infant industry anymore. It can certainly bear the burden of making sure that wires and the communications mediums are there."

At first glimpse it's not entirely clear what the point of the merger is, unless the two companies were simply interested in losing landline and last-generation DSL customers to cable competitors even faster. Neither company has exactly been lighting it up on the network upgrade front -- and Qwest has spent most of the last few years trying to trim debt for an acquisition instead of investing back into the network. The result is a company with aging last-mile infrastructure who (in the markets where it actually sees competition) pits slower DSL against faster alternatives like cable DOCSIS 3.0 technology or community fiber (which they have spent millions suing and fighting in Utah and Washington State).

Creating a larger company doesn't magically spawn a wireless division, and the company is still going to need substantially more cash to upgrade all of that outdated copper if they want to stay relevant. They may be thinking that by merging they can create a "too big to fail" super-rural telco with a better shot of getting USF and stimulus funds. As we've long noted, the USF is a very, very broken program that funnels money to carriers with historically little to no oversight into how that money is spent (and $25 billion has been dumped into e-Rate alone since 1998). Qwest recently applied for $350 million in federal stimulus funds, and lobbyists have been pushing the FCC to expand the USF to cover residential broadband and give more of that money to bigger carriers.

So the result will be a new, massive phone company primarily serving uncompetitive, rural markets using outdated last mile connections, with consumers helped through this transition via a support infrastructure that just grew incredibly fast. All of this will be propped up by the historically-broken (but soon to be supposedly "reformed") USF system and taxpayer subsidy, guided by Qwest lobbyists and an FCC with no real interest in improving competition in the sector. Surely this will turn out well for everybody involved, right?