The FCC’s Universal Service Fund (USF) has been a mainstay in the telecom industry since it was created in 1997 as a result of the Telecommunications Act of 1996. That Act explicitly ordered the FCC to adopt the following universal service principles – all of the FCC’s actions with the USF are derived from these simple principles.
- Promote the availability of quality services at just, reasonable, and affordable rates.
- Increase nationwide access to advanced telecommunications services.
- Advance the availability of such services to all consumers, including those in low-income, rural, insular, and high-cost areas, at rates that are reasonably comparable to those charged in urban areas.
- Increase access to telecommunications and advanced services in schools, libraries, and rural health care facilities.
- Provide equitable and non-discriminatory contributions from all providers of telecommunications services for the fund supporting universal service programs
The size of the USF has remained stable over the last decade, with USF disbursements in 2012 of $8.7 billion and 2021 disbursements of $8.5 billion. The USF is funded by an assessment on interstate telecommunications services. This includes a variety of telecommunications services – with the largest source of funding being assessed in landline telephone service, interstate long-distance, cellular and texting services, interstate private lines, and a host of smaller telecommunications services.
The USF is facing a big challenge because keeping the size of the USF stable has been an ever-increasing burden on those paying into the fund since interstate services have been steadily declining. To put this into perspective, the assessment on interstate services was 16.7% in the first quarter of 2017 and grew to 33% in the third quarter of 2022.
In the IIJA legislation, Congress ordered the FCC to take a fresh look at the USF. It ordered the agency to explore both the uses of the USF and the sources of USF funding.
The FCC reported back to Congress as ordered, and the FCC largely said that it still believes that its uses of the USF funding are appropriate and should continue into the future. There are critics of many of the functions funded by the USF, such as the 2020 RDOF reverse auction, but there is nearly universal support of programs like supporting broadband for schools and rural healthcare.
As part of the review of the USF, the FCC considered two funding ideas:
- One of the easiest ways to spread the costs of funding the USF would be to expand the assessments to include broadband. This would lower the assessment rate from 33% to some tiny amount depending on how the assessment for broadband is calculated.
- The FCC also explored the idea of assessing USF to “edge providers,” which are the large Internet firms such as streaming video providers, digital advertising firms, and cloud services companies – companies like Netflix, Facebook, and Amazon. This would shift most of the burden for funding the USF from the public to businesses – although businesses typically pass USF fees back to the public. But edge providers that offer free services like Facebook, Twitter, and Google search would have to eat the cost of such assessments.
The FCC decided not to take a position on the two funding ideas. The report to Congress said that the agency probably doesn’t have the authority to expand the USF assessment to these two groups of payers. The FCC thinks that Congress would have to act to change the method of USF assessments.
It will be interesting to see if Congress decides to take up the USF issue. One of the key issues facing Congress will be deciding if it wants to fund and continue the ACP program that provides a $30 discount from broadband for low-income homes. Congress assigned the operation of that fund to USAC, a non-profit organization that works under FCC guidance to operate the USF.
I have to think there are those in Congress that take exception to the FCC’s assessment that it is using the USF wisely. There are a lot of critics of recent programs like CAF II and RDOF. There have been plenty of critics of the Lifeline program, and I assume there are those against continuing the ACP low-income discounts. One of the risks that the FCC faces is that Congress might decide to resize or eliminate programs if it takes up the issue.