Last week, the Senate Subcommittee on Communications, Media and Broadband held a hearing titled “The State of Universal Service.” The Universal Service Fund is our nation’s critical connectivity program that helps ensure that voice and broadband services are available and affordable throughout the country.
Since its creation by Congress in the 1996 Telecom Act, the USF has become a program that millions of families, community anchor institutions and small businesses rely on to get connected. It has been especially valuable for families and businesses that rely on it for work, school and telehealth at home.
The USF spends about $8.5 billion annually to help fund affordable connectivity in rural areas, low-income households, schools, libraries and rural hospitals. Today, the Federal Communications Commission is working to make high-speed broadband as ubiquitous as telephone service, and broadband is the essential communications technology the USF now supports.
While the USF remains vital in an ever-increasing connected world, it is in serious jeopardy of surviving. To fund the programs, telecom providers are required to pay a certain percentage of their interstate and international telecom revenues, known as the “contribution factor.” Typically, telecom providers collect these USF fees from their customers on their monthly bills.
However, the telecom revenues that fund the USF have declined over 60 percent in the last two decades. As a result, the contribution factor has skyrocketed from about 7 percent in 2001 to a historic high of about 30 percent today, as a higher portion of telecom revenues is needed to sustain the fund. That means certain consumers and businesses are now paying an additional 30 percent on top of their phone bills in order to fund the USF.
Telecom revenues continue to decline so rapidly because customers today rely more on broadband services and less on landline and mobile phone services, but broadband revenues do not pay into the USF. While the FCC has modernized each USF program to help support broadband service, it has not modernized its funding mechanism to require broadband services to pay into the Fund even though historically the agency has required supported services to be included in the contribution system.
Without intervention, the contribution factor is predicted to rise to 40 percent by 2025. This is unsustainable and puts the stability of the entire USF at risk. In fact, the contribution factor has become so high that it has led some groups to challenge the USF in federal court as unconstitutional, which also threatens the sustainability of the USF.
Reforming the USF funding mechanism is urgently needed and long overdue
Over 340 diverse stakeholders have come together as the USForward Coalition calling on the FCC to move forward with USF reform by expanding the contribution base to include broadband revenues. This solution is based on the recommendation in the USForward Report (that INCOMPAS helped commission), which was written by USF expert and former FCC official Carol Mattey.
The USForward Report explains that the most logical way to reform the contribution system and sustain the USF is to include broadband revenues in its funding assessment. Under this approach, the contribution factor is estimated to fall to less than 4 percent. It also means that the services that get USF support are paying into it, rather than solely relying on telecom customers, including those that have not made the switch to broadband, such as older Americans.
In fact, some members of Congress understand the urgency of reform and also want the FCC to act. The Reforming Broadband Connectivity Act, for example, is a bipartisan, bicameral bill that would require the FCC to reform the contribution system within one year.
Some question whether large tech companies should be assessed to contribute to the USF, and the short answer is “No.” Tech companies invest $120 billion each year in global internet infrastructure, and unlike broadband providers, these companies do not request or receive USF funding for these investments.
The FCC also lacks the authority to regulate tech companies and doing so would require Congress to act. This would further delay reform and expand the FCC’s regulatory authority over all online content and services — an overreach that many question as too broad since nearly every business today has an online presence and uses the internet to conduct business. Moreover, proposals to target certain tech companies risk skewing the online marketplace and competitive markets.
Some also question whether we still need the USF at all, and the short answer is “Yes.” While Congress allocated tens of billions for broadband, most of this investment is targeted for deployment, yet a significant portion of the USF programs focus on affordability. We not only have to make sure we build out our broadband networks, but also that communities can then afford to subscribe to these services.
The FCC should not wait to reform the USF. The USForward Report sets out a real plan that the FCC can and should implement. Congress should encourage the FCC to act now and save the nation’s critical connectivity program.
Angie Kronenberg is the president of INCOMPAS, where she manages the policy team and its work before federal, state and local governments, as well as leading the association’s efforts on membership and business development. This piece is exclusive to Broadband Breakfast.
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