COLUMBIA, S.C. - Phone bills for every customer in South Carolina could be affected by a case going before the state Supreme Court on Thursday.

The justices will hear arguments on whether a 2.5 percent fee added to bills to make phone service in rural areas more affordable is legal.

The Public Service Commission adopted the universal service fee in 2001 after more than three years of discussion.

The fund currently brings in about $48 million a year and has collected more than $80 million since its inception two years ago, according to the commission.

Acting state Consumer Advocate Elliott Elam wants all that money paid back plus 12 percent interest.

His office, along with the South Carolina Cable Television Association and Southeastern Competitive Carriers Association are suing the commission, the South Carolina Telephone Association and Verizon South Inc.

A Circuit Court judge has ruled in favor of the fee, which was established to help local phone carriers who are required to provide service to all residents compete with phone companies that don't have that mandate.

Supporters of the fee say the other companies have an advantage, because they can target customers that are inexpensive to serve or buy other more expensive items, like call-waiting or Internet services.

During discussions about the fund three years ago, BellSouth said it costs them more than $100 per customer to provide service to some rural areas in South Carolina. The fund would allow the company to offset some of that cost and offer local rates comparable to ones in areas like Columbia.

Elam said while he understands the need for the fund, he thinks it collects too much money from South Carolina phone customers.

To figure out the size of the universal service fund, commissioners computed how much it would cost to provide a phone customer with all the services in a network, including long-distance, call-forwarding and other optional items and compared it with the revenue received from providing local service only, Elam said.

"Very few people out there take just local service," Elam said. "They want to ignore all the other revenue they get."

Public Service Commission lawyer David Butler disagrees. We think all of the costs were properly allocated," he said.

In legal papers, the commission argues that if the justices force the fees to be paid back to customers, small phone companies will have "huge revenue shortfalls that will have to be recovered in some manner."

Several phone companies reduced access charges when the fund was created and those fees likely would have to be raised again without help from the fund, Butler said.

"I don't know if that would be very easy," he said.