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The C-band spectrum auction isn’t over yet, but we already know it will create a windfall for the U.S. Treasury, having already doubled or even tripled some forecasts. Outgoing FCC Chairman Ajit Pai wants to see $50 billion of the money raised to go to the USF (Universal Service Fund) program.

The program covers some of the cost of delivering voice and broadband in high-cost rural areas, as well as some school and library connectivity costs, some rural healthcare connectivity costs and a low-income connectivity program.

In an address yesterday, Pai noted that the current USF funding mechanism is “unsustainable.” It is paid for by telecom service providers as a percentage of voice revenues, which have been declining, thereby requiring providers to devote a higher and higher portion of those revenues to USF. As Telecompetitor has reported, the percentage paid to USF, known as the contribution factor, has been increasing, even though the overall fund size has not grown substantially.

Pai noted in his remarks that the contribution factor has now hit 31.8% and argued that “we need to fix this problem soon.” He argued that the solution could lie in the C-band auction windfall.

C-Band Auction USF Proposal

The C-band auction is for coveted mid-band spectrum, which many industry observers see providing the optimum mix of range and speed for 5G. Network operators clearly seem to agree, as they already have bid to spend more than $80 billion in the auction, which is expected to be completed soon.

As Pai noted, the previous record for a spectrum auction was $45 billion.

By law, the auction proceeds will go to the U.S. Treasury, but Pai called on Congress to set aside “about $50 billion” from the auction to fund the USF programs for the next five years, thereby eliminating the current funding mechanism.

“Consumers would get a tax cut in the form of lower phone bills,” Pai noted.

Pai added that the law authorizing this spending should also “call on Congress to come up with a solution to the eroding contribution base within five years.”

That approach would provide “breathing room” to give elected officials time to devise a solution, he said.

As Pai noted, gaining agreement on a long-term sustainable solution will be no easy task. But he noted several possible solutions, including a direct appropriation, which he said, “makes a lot of sense for economic, public choice, democratic accountability and other reasons.”

Other possible solutions might involve collecting contributions based on connections, rather than revenues, or focusing assessments on businesses, not consumers.

“Or you could come up with something else altogether,” he said.

This isn’t the first time Pai has proposed using a portion of spectrum auction revenues for USF initiatives. He previously suggested setting aside 10% of all auction proceeds for rural broadband. At least one similar proposal also has been introduced by federal legislators.

Pai made his USF auction proceeds proposal in an address streamed by the Multicultural Media, Telecom & Internet Council and The National Grange.

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