Universal Service Fund - Universal Service Reform

Universal Service Reform

Debate over the Universal Service Fund has consistently involved the scope of the funding, which technology types and companies should fund the program, which groups should be eligible for benefits, and the need to clean up waste and fraud in the program. In 2011, the FCC made material changes in the USF program, largely benefiting the largest traditional telephone companies in the country, which now have double the access to funding that they had before those changes. Smaller traditional and wireless carriers were given reduced access to support going forward, which means that unless the FCC makes future changes, the country will depend in large measure on two carriers to carry out broadband deployment and ongoing operations in rural areas in the future, and in some very rural areas of the country, service may diminish.

Many of the services covered by the USF are related to traditional telephone technology. There is a rising concern that some of the more recent developments in telecommunications are just as important to the consumer as these older technologies. For example, consumers' subscriptions to traditional telephone services have fallen while their subscription rate to wireless services have been rising consistently. Yet many cellular companies are likely to receive less funding under the new rules, which may reduce consumers' access to wireless services in areas of the country that have low populations. Similarly, a question currently debated is whether access to broadband internet should be supported by the USF and if so, how best to fulfill such a large mandate without damaging the stability of the fund. The Telecommunications Act of 1996 states that "advanced services" should be accessible to all Americans . One question is whether the providers of internet access should contribute to the fund like other companies that provide access to telecommunications, if such providers also want to draw from the fund.

The rapidly changing interstate and international telecommunications markets can quickly and unpredictably bring about changes in USF funding levels. Dorothy Attwood of the FCC Wireline Competition Bureau stated, “One striking development that we’ve witnesses in the interstate marketplace is the steady decline of interstate revenues. Although traditional long-distance revenues grew consistently between 1984 and 1997, they’re now in a period of steady decline”. She pointed out that competition in interstate long-distance market, wireless substitution and bundling of service packages that blur traditional service categories are all reducing revenues that serve to finance the USF. Service providers simply transferred the cost to customers in the form of a long-distance surcharges to make up for reduced revenue. While the expenditures of the USF have increased since its inception, in part due to expansion of support paid to competitive providers, the revenues on which contributions are made, interstate and international telecommunications revenues, have become increasingly more difficult for contributors to identify as a result of evolution of services offered. Overall revenues reported by telecommunications companies have steadily increased, if information service revenues are included. However, the revenues for these services are no longer subject to contribution. Proposals have been made to increase the number of sources from which universal service fund is collected. This could include expanding contributions to include intrastate telephone services (calls within single states), voice over IP (computer-to-computer calls), and information services such as broadband, and increasing contribution requirements from wireless communication providers.

In the interest of reducing waste, limited support to a monopoly universal service provider for each territory has be considered. Wireless technology is increasingly favored by consumers, and can cover a single territory often for less than landline technology. However, wireless has traditionally been a competitive industry, which has resulted in a variety of innovative services for consumers, but means that supporting wireless companies requires a complex understanding of how to allocate funding on a shared basis, in order to avoid injury to the positive forces of competition. Congress enacted significant laws, enforced by the Department of Justice, ensuring curbs on laissez faire economics for the good of the population after antitrust abuses of prior centuries.

The issue of waste and fraud, as with many government programs, has been addressed as well. Gilroy stated, "The ability to ensure that only eligible services are funded, that funding is disbursed at the proper level of discount, that alleged services have been received, and the integrity of the competitive bidding process is upheld have been questioned". Improved auditing of particularly the E-rate program has been addressed.

On July 22, 2010, the Universal Service Reform Act of 2010 was introduced by Representatives Boucher (D-Va) and Terry (R-NE). The measure is intended to improve and modernize the USF by reining in the size of the fund and promoting broadband deployment.

Reform finally arrived on October 27, 2011, when the FCC approved a six-year transfer process that would transition money from the Universal Service Fund to a new $4.5 billion a year Connect America Fund that will support the expansion of broadband services to areas that don't have broadband access yet.