The FCC has waived the budget control mechanism for the Universal Service Fund (USF) high-cost loop support (HCLS) and Connect America Fund broadband loop support (CAF BLS) programs for the July 2023 to June 2024 tariff year. The move will enable rural providers that receive funding through those programs to receive their full calculated amount of support, rather than having it reduced by over 18%.
In the order, the commission said that rural providers “continue to face cash flow issues and increased expenses as they emerge from the pandemic.” If support were reduced, the providers would likely have to raise prices, which would put a burden on their customers.
“Taken together, we find the current circumstances pose significant burdens on legacy carriers, which would be exacerbated should there be a sizeable reduction in support,” the order says. “To ensure these small companies are not subject to financial strain, which could lead to significant increases in rates imposed on rural consumers, we find it is in the public interest to waive the application of our budget constraint rules.”
USF Budget Control Mechanism
The budget control mechanism is designed to essentially cap the HCLS and CAF BLS programs. If carriers’ calculated level of support exceeds that cap, each carrier’s support is reduced commensurately.
Universal Service Fund (USF) programs are funded by urban and rural service providers as a percentage of telecom revenues. Providers pass those costs on to customers as a charge on their bills. In addition to the HCLS and CAF BLS programs, Universal Service programs include other rural telecom programs, as well as a rural telehealth program, a schools and libraries program and a low-income program.
While acknowledging that the budget control mechanism waiver will put increased pressure on the USF, the FCC said that it “must take into account both the affordability of, and support for, services in high-cost areas and the demands on areas where customers are net fund contributors.”
In the current circumstances, the commission said, “we find the benefits of waiving the budget control mechanism . . . far outweigh the limited impact on the fund given the significant reduction in support that would result from imposition of the budget constraint, ongoing challenges as we emerge from the pandemic and the importance of providing broadband services during this unprecedented time.”
The commission also noted that provider funding needs had increased because of an increased conversion of voice lines to broadband-only lines and new subscribers who moved to rural areas during the pandemic.
Mike Romano, executive vice president of NTCA—The Rural Broadband Association, hailed the USF budget control mechanism decision.
“The high-cost Universal Service Fund is critical to support the deployment, affordability, and sustainability of robust communications in rural America,” said Romano in a prepared statement.
The order, he said, “will allow rural broadband providers to keep their focus on delivering high-quality, reasonably priced voice and broadband services rather than figuring out where to reduce investments, cut back operations, or raise customer rates in the face of a significant budget cut. On behalf of NTCA members and the communities they serve, I thank the FCC for acting today, and we look forward to continuing efforts to enhance and stabilize the essential high-cost universal service programs for the benefit of all Americans far into the future.”