Time to Reform the Universal Service Fund

The Federal Communications Commission (FCC) created the Universal Service Fund (USF) in 1996 to “promote the availability of quality services at just, reasonable and affordable rates for all consumers; 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; and provide equitable and non-discriminatory contributions from all providers of telecommunications services to the fund supporting universal service programs.”  In essence, USF was designed to provide subsidies to build the infrastructure and provide telephone service to high cost areas.

Over the years the USF has taxed cell and land line phone service to provide these services.  But, what most people don’t know is that USF has also been stockpiling this money, more than $4 billion.

Fifteen years after its creation it is time to re-evaluate the USF.  According to the Free State Foundation, “Studies over the past decade have pointed to large-scale waste and inefficiencies in the USF system.  A study from the late 1990s concludes that ‘welfare losses endured in the name of universal service totaled tens of billions of dollars over the years.’ But if the exponential growth of the high-cost fund over the last decade is any indication, such losses have substantially increased. Once recent study, for example, suggests that as much as $0.59 of every dollar in USF subsidies going to incumbent local exchange carriers goes to general and administrative costs, not to constructing and operating infrastructure.”  This is a critical point considering that the USF money was supposed to go for construction and operation and infrastructure.

TPA would like to see the fund eliminated altogether but understand that if that can’t be accomplished, the fund needs to be better managed and truly be used to build technology infrastructure in those places that don’t have it.

Recently, a group of technology, telecommunications and internet service providers submitted a proposal to the FCC to reform the USF. Taxpayers should be pleased to see an industry consensus building to reform a program that continues to grow and waste taxpayer dollars.  TPA is pleased to see that the industry proposal includes a cap on the high cost universal service program. Originally intended to provide affordable access to telecommunications services for all consumers, the Fund’s recent growth has reached an unnecessary – and unsustainable – level. The industry proposal is a step in the right direction for reforming an outdated program and making better use of taxpayer dollars.