internet use

Several broadband provider associations, along with other entities numbering 332 in total, are taking another crack at persuading the FCC to expand the contribution base for the Universal Service Fund (USF) program to include broadband revenues.

In a letter to the FCC, the entities argued that the current funding mechanism is unsustainable, potentially making the USF program unsustainable as well.

The commission “should not wait any longer,” the letter states. “It is time to modernize the USF contribution methodology and sustain the USF for the future.”

The letter was signed by the Ad Hoc Telecom Users Committee, INCOMPAS, NTCA—The Rural Broadband Association, Public Knowledge, the Schools, Health & Libraries Broadband (SHLB) Coalition, and the Voice on the Net Coalition, as well as numerous state telecom associations, rural broadband providers, anchor institutions such as libraries and school districts and others. 

Why Expand USF Contribution Base?

The USF pays some of the costs of providing broadband and voice service for high-cost rural areas. Funding also goes toward the rural healthcare program, the schools and libraries program, and the Lifeline program, which pays some of the costs of voice and broadband for low-income households.

Yet even though all the programs have a broadband focus, the money for the programs is paid by service providers as a percentage of telecom revenues, which are comprised in large part of voice revenues. Broadband internet access service (BIAS) is not included in the contribution base, even though funding largely goes toward those services.

The letter notes that the USF contribution factor, the percentage of telecom revenues paid into the fund, could reach 40% in just four years because telecom revenues have been declining, a risk that a previous Telecompetitor analysis also noted.

What has made reform urgent, according to the letter, is “the increased (and continuing) instability of the funding mechanism at a time when broadband access has never been more important.”

The letter also argues that expanding the contribution base to include broadband access would remove incentives for providers to unfairly allocate revenues from bundled services.

According to the letter, there is strong support for the commission to stabilize the USF.

The Opposition

The idea of expanding the USF contribution base to include broadband traditionally has not had strong support from policymakers because opponents position it as “taxing the internet” and argue that it would hurt broadband adoption. As an attachment to the letter notes, however, a 2020 study from Berkeley Research Group found that the imposition of a relatively small assessment on broadband services would have no material impact on broadband adoption and retention.

The 332 entities go on to argue that “[t]o the extent there are concerns about the impact of such reform on the most vulnerable populations, such concerns can be addressed by tailored measures to protect low-income households.”

Also attached to the letter was a 26-page September 2021 report from Mattey Consulting that analyzed several different options for reforming the USF contribution base and concluded that expanding the base to include broadband access was the best option.

The USF program’s annual $8 billion budget is small in comparison with the tens of billions of dollars that have been made available for broadband through the infrastructure bill adopted late last year and through other recent legislation. It’s important to note, though, that those programs are all finite, while the USF is an ongoing program.

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