Universal Service Contribution Factor is Now 17.4%

The FCC this week released the Universal Service contribution factor for the second quarter of 2012—and it’s a whopping 17.4%. That means carriers are now paying an amount equal to 17.4% of their long-distance revenues to the Universal Service Fund—a cost that undoubtedly is passed on to end user customers.

The total amount of money collected for the Universal Service program for the first quarter of 2012 will be $2.4 billion. The money goes toward the schools and libraries program, which receives 25.5% of the total; rural healthcare (1.5%); the low-income program (26%); and the high-cost program (47%), which covers some of the costs of providing phone service in areas that are costly to serve.

Because the high-cost program gets the largest portion of total funding and because the size of the high-cost fund has grown considerably in recent years, it has been targeted for major reforms—an area Telecompetitor has been following closely.

Some people are outraged that we’re spending so much money on what is nominally a voice-focused program. But it’s important to note that because voice service can share infrastructure with broadband services based on DSL and fiber-to-the-home, a large part of the money that has been spent has gone toward the cost of deploying broadband. Most rural telcos that receive high-cost Universal Service funding have used it toward bringing broadband to a large part of their service territories.

The U.S. has now set a goal of making broadband available to everyone—and it is that goal that is driving reforms to the Universal Service program aimed at focusing exclusively on broadband service. The government also wants to achieve that goal without increasing the size of the fund, as reforms adopted by the FCC in October made very clear.

When you look at the 17.4% contribution factor, it’s easy to see why the FCC wanted to put a tighter rein on how much the fund could grow. As currently configured, it has no upper limit and it lacks certain constraints. For example, a large part of the growth in the program size in recent years resulted from wireless carriers obtaining funding at the same level as incumbent landline competitors, even when their costs were lower. The FCC has taken steps to eliminate those recipients from getting funding in the future. But unfortunately what happened there has given the entire program a bad reputation.

Many rural carriers believe the U.S. is not aiming high enough with its broadband Universal Service plans. In particular they say the 4 Mbps broadband speed target should be higher. But it is important to recognize that if the target were set at a higher level, the contribution factor would have to grow even higher—unless contributors to the program were expanded beyond the current long-distance carrier base.

Some people have argued that companies like Google and Amazon that benefit from broadband should be required to pay into the fund—thereby minimizing the percentage that any single company contributes and potentially enabling a higher broadband speed target.

It would be interesting to hear what Telecompetitor readers think about that idea.