Reform of the Universal Service Fund (USF) in USA

FCC Reports to Congress on Future of the Universal Service, August 15, 2022

In 2021, Congress asked the Federal Communications Commission to prepare a report on the future of Universal Service in the USA. The Telecommunications Act of 1996 codified principles and the Universal Service Fund (USF) into  law.  These include promoting the availability of quality services at just, reasonable, and affordable rates; increasing access to advanced telecommunications services throughout the Nation; advancing the availability and affordability to low income, rural, insular, and high cost areas; access to advanced telecommunications services for schools, health care, and libraries; and specific, predictable and sufficient mechanisms to preserve and advance the program.

However, the Fund is on track for bankruptcy. Its financial model, based upon surcharge collected from voice telecommunications services, relies on a growing percentage of a shrinking service (traditional telephone users face a 30% charge on their bill). The model has been likened to building highways with a fee on the horse and buggy industry. The tech trade associations Incompas (representing Google, Amazon, Meta, Netflix, Microsoft among others) suggests solving the problem by adding a tax to broadband; naturally Incompas prefers this solution because it insulates tech companies from any USF burden or responsibility, even though these companies benefit the most financially from any new user connected to the internet.   

Moreover, the lack of participation in fair cost recovery by America’s largest, richest internet companies may be the most significant reason why the provision of information communications services has fallen short in many rural and Tribal areas, as well as in historically unserved, underserved, marginalized, impoverished, and other adversely impacted communities.

Policymakers support efforts to increase broadband deployment and adoption because they create social benefit. Our society benefits when people use broadband to find a job, start a business, or learn a skill. Moreover, when people take advantage of remote work, education, and healthcare, they reduce the resource requirements of receiving those services in person. However, increasing the price of broadband with USF fees runs counter to the policy goals of supporting broadband deployment and adoption. Economists Hal Singer and Ted Tatos show that Incompas’ proposal amounting to a $5 fee on broadband would force at least 10 million Americans to cancel their broadband subscription. It’s bad economics to tax the service you want to encourage.

In any event, Congress interest to reform Universal Service provides a valuable opportunity to rethink the program purpose, goals, and funding mechanism. While the USF began with the 1996 Telecommunications Act, its history stretches back to more than a century. “The phrase universal service, which first emerged in telephone policy debates in 1907, did not mean a telephone in every home or rate subsidies, but the interconnection of the systems into a unified, non-fragmented service,” observes telecom policy scholar Milton Mueller. Notions of universal service evolved to include concepts like a phone in every home and today the principle that all Americans should have access to communications services.

A better realization of universal service would be the restoration of business-to-business contributions model of universal service practiced from 1913-1995. Joel Thayer of the Digital Progress Institute (DPI) explains,

“Although the complexities and competitive inequities of the current contribution system are well known, less well recognized is the historical atypicality of who now pays for universal service. From the Kingsbury Commitment of 1913 until the 1990s, businesses that relied on the telephone system to make long-distance calls bore the lion’s share of the cost of providing universal service to local residences. It was only after the adoption of the current, interstate end-user telecommunications revenues system in 1997 and the parallel rise of all-distance plans and ubiquitous wireless communications that led to today’s inequitable system. The current contribution regime saddles American families, veterans, working adults, and the elderly with the brunt of the costs for universal service. Compare this to the corporations that rely on broadband and the telephone network to make a profit and contribute little if anything at all.”

DPI further observes an exploitation of the current USF in the form of a 20-year-old self-provider exemption from contributions.  “Some of the largest companies in the world like Google and Tencent have deployed extensive fiber backhaul networks that interconnect with other telecommunications providers. Because of the exemption, some of the largest corporations in the online economy can get access to faster service without any contribution to the Universal Service Fund.”

DPI, among others, suggests that the Commission shift the burden of contributions away from consumers and onto the corporations that profit from universal service. “The largest companies in the Internet economy, which contribute almost nothing to the Universal Service Fund today, are far less diverse—with fewer “people of color, persons with disabilities, persons who live in rural or Tribal areas, and others who are or have been historically underserved, marginalized, or adversely affected by persistent poverty or inequality”—than the American public at large. In other words, such as shift would promote fairness and equity in the program, in line with the Commission’s goal of advancing diversity, equity, inclusion, and accessibility in the broadband arena.”

Fortunately the FCC’s recognizes these perspectives in its report for example, the financial challenge to provide broadband in rural areas; the need for additional financial support for networks in areas where affordable pricing does not cover cost; providing support for the ongoing and maintenance cost of networks, not just one-time fixed cost; and the need for middle mile strategy.

The FCC also recognized the view that the companies which profit from broadband services, especially those provided through the USF should contribute to USF. Hence there is interest to explore how and how much could be raised by including some set of edge providers in the fund, for example the largest streaming video providers, digital advertising firms, and cloud services companies.

The statement in support of the report by Commissioner Brendan Carr notes, “As the Commission’s report determines, a diverse and wide-ranging group of commenters—including large and small industry stakeholders, consumer groups, public officials, state associations, and economists—have all determined that assessing the services offered by large technology companies would allow the FCC to broaden the contributions base in a fair and equitable manner, without harming consumers.” FCC Chairwoman Rosenworcel called the idea of bringing large edge providers into the USF “intriguing.” “We should be open to new ideas. But it’s clear that this would require action from Congress.”

In addition to the many economists, academics, and telecom policy scholars which support the study and incorporation of tech companies into USF, many social advancement organizations have noted the same and have filed such comments to the FCC including but not limited to the Multicultural Media Telecom and Internet Council, ALLvanza, Asian Pacific Islander Association, Asian & Pacific Islander American Health Forum, Asian and Pacific Islander American Vote , Asian Pacific American Women, Filipina Women’s Network, Hispanic Federation, The National Latino Voice in Tech & Telecommunications Policy, Institute for Asian Pacific American Leadership & Advancement, International Leadership Foundation, The Latino Coalition, LGBT Tech, MANA, A National Latina Organization; National Asian/Pacific Islander America, Chamber of Commerce & Entrepreneurship, National Association of Asian American Professionals, National Council of Asian Pacific Americans, National Federation of Filipino American Associations, National Queer Asian Pacific Islander Alliance, Sikh American Legal Defense and Education Fund, and US Hispanic Chamber of Commerce.

Read Roslyn Layton’s comments to the proceeding. (March 17, 2022)

See Roslyn Layton’s reply comment correcting the record with claims from Incompas

March 31, 2022

August 1, 2022