The head of the FCC is canceling a controversial vote on a plan to overhaul telecom regulations. One of Kevin Martin’s plans would have rewritten the fees that phone companies pay each other to connect calls. The other plan would have altered the multibillion dollar Universal Service Fund that subsidizes phone service in underserved areas.

The decision is a setback for FCC Chairman Kevin Martin, one of three Republicans on the five-member commission. He hoped to pass his two of his proposals before power changes hands in Washington. Several lawmakers and consumer groups sought a delay.

Six Additional U.S. Senators joined 110 other Members of Congress to urge the FCC to postpone its November 4 Vote. Voicing the widespread and growing concern over the FCC proposal, Senator Dorgan stated, “While I applaud the FCC for undertaking an examination of ICC and USF Reform, I believe that apart from the process concerns you continue to hear about, there are actual problems in the substance of the proposal that need to be addressed. And the best way to address them would be to put them out for further comment.”

Senators Leahy and Sanders co-signed a separate letter to the FCC, stating, “Any action that the FCC eventually takes to reform intercarrier compensation and the universal service fund must be sensitive to the needs of rural America.”

Universal Service Fund (USF) which subsidizes rural carriers, and intercarrier compensation (ICC) rules, which determine the rates telecom carriers pay for using each other’s networks, hasn’t commanded as much attention as the recent debate about the so-called spectrum white spaces.

The USF’s 2009 budget is US$6.7 billion, not counting the $4.2 billion E-Rate program, which helps schools and libraries in poor areas connect to the Internet. The U.S. government raises the funds through a tax on telephone service, and some mobile carriers collect the tax as well. Critics have argued that the USF is poorly managed and lacks oversight of how the money is spent. Some critics have said the fund gives billions of dollars to large and small telecom carriers that no longer need a subsidy to maintain existing telephone networks.

In the past, only long distance companies made contributions to support the federal Universal Service Fund. In 1996, Congress passed a law that expanded the types of companies contributing to the Universal Service Fund.

The Coalition for Affordable Communications, a group of rural phone and broadband providers were also against the proposed changes. Their group includes CenturyTel, Consolidated Communications, Embarq, FairPoint Communications, Frontier Communications, Iowa Telecom and Windstream Communications, who collectively serve more than 17 million customers in 42 states.

On Tuesday, the Federal Communications Commission is still scheduled to vote on a measure that would make white space available for wireless broadband. Under the proposal, these airwaves would be treated like Wi-Fi — unlicensed and free to everybody.

“It will be like the Wi-Fi you get at Starbucks, only a lot better,” says FCC Chairman Kevin Martin, who first proposed the idea four years ago. The FCC’s goal: to serve the expanding broadband needs of U.S. consumers. The five-member commission seems likely to approve the measure, according to the NY Times.

Also on the agenda, and likely to pass according to observers, is a vote to authorize the merger of Verizon and Alltel and a vote to authorize the Sprint/Clearwire/Comcast joint WiMAX venture.