train tracks

If the FCC’s Net Neutrality and Title II proposal is adopted as written, it could make it more difficult to achieve certain reforms to the Universal Service Fund (USF) program – a program that is badly in need of reform.

At issue is whether broadband revenues would be included in the contribution base that determines funding for the program. The draft proposal made public yesterday calls for those revenues not to be included, even though a large portion of USF funding goes toward the costs of broadband service.

There are four separate USF programs, all of which cover some broadband costs – a rural “high-cost” program, a low-income program, a schools and libraries program, and a telehealth program. Yet all four are funded by money collected from telecommunications service providers as a percentage of telecommunications revenues comprised, in large part, of voice revenues.

The service providers pass on those costs via charges on bills for telecom services — and as voice revenues have declined, a larger and larger percentage of telecom revenues are going toward USF broadband programs. The percentage currently fluctuates around 30% and voice customers are left footing the bill for broadband. It is widely believed that the system isn’t sustainable, and some stakeholders argue that funding should be collected as a percentage of both voice and broadband revenues. To implement Net Neutrality, the FCC had to reclassify broadband as a telecommunications service, which could have made it easier for the agency to expand the contribution base to include broadband revenues.

According to the FCC, though, it is in the public interest not to include broadband revenues in the contribution base. In the draft Net Neutrality order, the commission cites a single study, which showed that doing so would increase internet bills by 5% to 18% and negatively impact adoption rates. Other studies have shown a smaller impact on internet bills that would not impact adoption rates.

Ironically, the commission said that “forbearance essentially maintains the longstanding status quo” as if that was a good thing, despite ongoing calls for reform.

Another quote from the commission that some may find laughable: “We do not think it inequitable [to require] contributions from more mature services that have already achieved near-universal penetration.”

To its credit, the commission did leave the door open to the possibility of retracting the forbearance in the future, noting that “We do not disclaim our authority to require new universal service contributions in a future rulemaking, and our decision today is not intended to prejudge or limit how the commission might take action in the future.”

At least one stakeholder group argues that forbearing from including broadband in the USF contribution base could hurt the chances of broadband being included in the base in the future, however.

“The FCC’s draft order would not only forbear but could effectively foreclose much-needed debate in the near term about how to preserve and advance universal service,” said Shirley Bloomfield, CEO of NTCA—The Rural Broadband Association, in a prepared statement.

Bloomfield also noted that not forbearing might have been a means of saving the Affordable Connectivity Program, which covers some of the costs of broadband service for low-income households.

In reference to including broadband revenues in the USF contribution base, Bloomfield argued that “While NTCA certainly appreciates that further discussion is certainly needed to consider the potential implementation and application of any such obligation, effectively cutting off such discussion at the FCC for now would neither advance the mission of universal service nor serve the public interest.”

“We hope that meaningful and productive conversations on these issues will continue in the coming weeks before this order is finalized,” Bloomfield said.

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