The FCC should not expand the Universal Service Fund contribution base or increase the overall USF budget, said FCC Commissioner Michael O’Rielly in an address at the Hudson Institute this week.

“Instead of broadening the base, I want to get overall spending under control,” said O’Rielly. “I would start by making a real effort to find efficiencies and savings within and across all USF programs.”

Noting that Universal Service is comprised of four separate programs, O’Rielly said “We may have to make some hard choices about the relative sizes of each of the programs.”

Those four programs are the high-cost USF, the Lifeline low-income program, the schools and libraries E-Rate program and the rural healthcare program.

O’Rielly did not state which of the four programs he would like to see receive more or less funding than they do currently. But considering the emphasis that the FCC, the White House and Congress have put on rural broadband in recent weeks, perhaps the high-cost fund is one that he believes should get more funding. Broadband deployment goals for that program had to be cut back last year when more rural service providers than expected accepted funding to cover some of the costs of those deployments, creating a budget shortfall.

The Universal Service Fund Contribution Base
O’Rielly correctly noted in his address that Universal Service is funded by service providers as a percentage of interstate and international end-user telecommunications revenues – a cost that the providers generally pass through to consumers on their phone bills. What he didn’t explicitly state is that “telecommunications” in this context means voice services.

Initially USF programs were voice-focused, but in recent years, USF funding has shifted more and more toward broadband for all four of the programs – a reality that has driven some stakeholders to argue that the USF contribution factor should be calculated as a percentage of both voice and data revenues.

O’Rielly argued specifically against this idea, however, saying that it would make broadband less affordable, particularly for lower-income Americans who do not qualify for Lifeline discounts. He also argued that “[m]any advocates in support of broadening the base intend it to be used as a back door means to increase the USF budget” – the idea being that spreading fees over a broader set of consumers and services could bring in more revenue to pay for higher program budgets.

He downplayed the argument that it’s unfair for voice customers to foot the entire USF bill and for broadband customers to pay nothing, even though the fund is increasingly broadband-focused, stating that “this argument seems to be more about ratcheting up burdens on competitors.” He also commented that programs built on redistribution will always have net payers and net recipients.

Ironically, the O’Rielly address came just a few weeks after fellow Republican Commissioner and FCC Chairman Ajit Pai proposed increasing the USF high-cost program budget by $500 million. Details of that proposal have not been made public and a press release about it did not detail where the money would come from – although a FCC spokesperson told Telecompetitor that it would come, in part, from reserves and that the draft order about the $500 million seeks input on the program budget.

O’Rielly wasted no time in providing his input, but I’m sure we will be hearing more points of view soon – including from those who disagree with O’Rielly, as well as from those who agree with him.