Universal Service Fund
The Universal Service Fund (USF) is a system of telecommunications subsidies and fees managed by the United States Federal Communications Commission (FCC) intended to promote universal access to telecommunications services in the United States. The FCC established the fund in 1997 in compliance with the Telecommunications Act of 1996. The fund reported a total of $8.33 billion dollars in disbursements in 2013, divided among its four programs. The fund is supported by charging telecommunications companies a fee which is set quarterly. As of the fourth quarter of 2014, the rate is 16.1% of a telecom company's interstate end-user revenues.
While separate itemization is not required by the FCC, it is common for USF fees to be listed separately from other charges on a consumer's bill. Universal Service charges should not be confused with what are sometimes referred to in telephone company bills as "Federal Subscriber Line" charges, which are access fees charged by telecommunications companies, not the local or federal government.
- 1 Background
- 2 Components
- 3 Administration
- 4 Controversy
- 5 Proposed reform
- 6 See also
- 7 References
- 8 Further reading
- 9 External links
Calls for universal service
By 1913, AT&T had favored status from U.S. government, allowing it to operate in a noncompetitive economic environment in exchange for subjection to price and quality service regulation. The government asserted that a monopolistic telephone industry would best serve the goal of creating a “universal” network with compatible technology country wide for telephone consumers. Regulators emphasized limits on profits, enforcing “reasonable” prices for service, setting levels of depreciation and investment for new technology and equipment, dependability and “universality” of service. “Universal” was originally used by AT&T to mean, “interconnection to other networks, not service to all customers”. After years of regulation, the term came to include infrastructural development of telephony and service to everyone at a reasonable price.
Communications Act of 1934
The Communications Act of 1934 includes in its preamble a reference to universal service. It calls for “rapid, efficient, Nation-wide, and world-wide wire and radio communication service with adequate facilities at reasonable charges” to “all the people of the United States.” Communications Act of 1934 - Title I, Sec. 1 [47 U.S.C. 151] The Communications Act of 1934 first established the concept of making affordable basic telephone service available to everyone everywhere within a nation, state, or other governmental jurisdiction.
The code was amended by the Telecommunications Act in 1996 to include, “without discrimination on the basis of race, color, religion, national origin, or sex…” To comply, AT&T began increasing the price of long distance service to pay for universal service. The act also established the FCC to oversee all non-governmental broadcasting, interstate communications, as well as international communication which originate or terminate in the United States.
Before the Telecommunications Act of 1996, the Universal Service Fund (USF) operated as a mechanism by which interstate long distance carriers were assessed to subsidize telephone service to low-income households and high-cost areas in order to ensure that all the people in the United States have access to rapid, efficient, nationwide communications service with sufficient facilities at realistic charges.
Era of deregulation
There was a push for deregulating the telecommunications industry in the 1980s. Under President Ronald Reagan, the FCC shifted its focus from “social equity to an economic efficiency objective,” which it claimed was a primary purpose of the Communications Act of 1934. After AT&T was split up in 1984, universal service was still “supported by a system of above-cost access charges paid to local exchange companies.” This system was administered by the National Exchange Carrier Association. Increased competition and universal service were later legislatively addressed and codified with the Telecommunications Act of 1996.
Telecommunications Act of 1996
The Universal Service Fund was first codified in the Telecommunications Act of 1996, the first major rewrite of the Communications Act of 1934. The act addresses new challenges and opportunities of the digital information age, with the goal of promoting an economic environment conducive for the growth of new information technology. It also further developed the meaning and implementation of universal service. The act calls for the creation of a joint federal-state board to make recommendations to the FCC on defining federal universal services and set time tables. The act also set out immediate priorities of universal service. These include quality and reasonably priced services, access to advanced telecommunication services, access for rural, low-income and high-cost regions, equitable and nondiscriminatory service, specific and predictable price structure, access of advanced telecommunication services for schools and health care and libraries (Sec. 254(b)(1)-(7)). The act provided ability in the constantly changing telecommunication environment to periodically revisit and adjust universal service, while setting core principles (Sec. 254(c)). The 1996 act also “mandated the creation of the universal service fund (USF) into which all telecommunications providers are required to contribute a percentage of their interstate and international end-user telecommunications revenues”.
The major goals of Universal Service as mandated by the 1996 Act are as follows:
- Promote the availability of quality services at just, reasonable and affordable rates for all consumers
- Increase nationwide access to advanced telecommunications services
- Advance the availability of such services to all consumers, including those in low income, rural, insular, and high cost areas, at rates that are reasonably comparable to those charged in urban areas
- Increase access to telecommunications and advanced services in schools, libraries and rural health care facilities
- Provide equitable and non-discriminatory contributions from all providers of telecommunications services to the fund supporting universal service programs
— Federal Communications Commission, Universal Service
The 1996 Act states that all providers of telecommunications services should contribute to federal universal service in an equitable and nondiscriminatory manner; there should be specific, predictable, and sufficient Federal and State mechanisms to preserve and advance universal service; all schools, classrooms, health care providers, and libraries should, generally, have access to advanced telecommunications services; and finally, that the Federal-State Joint Board and the FCC should determine those other principles that, consistent with the 1996 Act, are necessary to protect the public interest.
The Universal Service Fund as made up of four constituent programs:
In 2013, the high cost program paid out $4.17 billion in subsidies to telecommunications companies. This support ensures that consumers in all regions of the nation have access to and pay rates for telecommunications services that are reasonably comparable to those in urban areas. The High Cost Program is by far the largest and most complex of the four programs. The net goal of the program is to keep telephone service affordable for customers in areas where, absent the subsidy, telephone service would be dramatically more expensive than the national average. The complex system of fees, surcharges and subsidies supports telephone companies in rural and remote areas.
The program has been criticized as wasteful, granting large sums of money to telecommunications companies while having little effect on access. On October 27, 2011, the FCC approved a six-year transfer process that would transition money from the Universal Service Fund High-Cost Program to a new $4.5 billion a year Connect America Fund for broadband Internet expansion, effectively putting an end to the USF High-Cost Fund by 2018.
The High Cost Program helps ensure that consumers in all regions of the nation have access to and pay rates for telecommunications that are reasonably comparable to those in urban areas. The program fulfills this goal by allowing eligible telecommunications carriers to recover a portion of their operating costs from the federal Universal Service Fund. In April 2010, the FCC proposed reform to the High Cost Program.
Lifeline (low-income phone subsidies)
The lifeline program provides a subsidy for Americans below 115% of the poverty line a $9.25 subsidy for land line or cell phone service. As of 2012, 17 million households are signed up for the program. In 2013, the lifeline program paid out $1.80 billion in subsidies. As the original program was set up to cover land lines, there is criticism of the increasing use of the fund to cover wireless service, as well as significant waste in the program.
Lifeline Assistance provides discounts on basic monthly service at the primary residence for qualified telephone subscribers. These discounts can be up to $10.00 per month, depending on the location. Along with these programs, subscribers living on tribal lands may qualify for additional discounts. Residents of Native American Indian and Alaska Native tribal communities may qualify for enhanced Lifeline assistance (up to an additional $25.00) and expanded Link-Up support (up to an additional $70.00). Eligibility varies from state to state. States with their own programs may have their own eligibility guidelines. For states that rely solely on the federal Lifeline and Link-Up program eligibility criteria, subscribers must either have an income that is at or below 135% of the federal Poverty Guidelines, or participate in other assistance programs. On January 31, 2012, the Federal Communications Commission approved an order changing parts of the Universal Service Fund (USF) known as the "Lifeline Program" to reduce fraud and abuse. In April 2013 a hearing was held before the Subcommittee on Communications and Technology of the Committee on Energy and Commerce, U.S. House of Representatives, to explore issues relating to whether the program should be eliminated or placed under a budget cap, and if not, whether a freeze should be put in place until the reform measures currently underway are completed.
Link-Up America assists consumers with the installation costs of phone service. Link-Up program pays up to $30 of the telephone service installation fees, and provides up to $200 of one year, interest-free loans for any additional installation costs. On January 31, 2012, among other changes to the Lifeline Program, the FCC announced that they would be ending the Link-Up America Program, except on Indian reservations.
The Low Income Program provides discounts that make basic, local telephone service affordable for millions of low-income households. Link Up reduces the one-time cost associated with initiating telephone service and line extension to the consumer's residence. Consumers qualifying for Link Up support are eligible to save 50% on installation fees, up to $30. Lifeline lowers the cost of basic, monthly local telephone service. Eligible consumers can receive up to $10 per month in Lifeline discounts. Additional state support may be available. Additional discounts are available to residents of federally recognized tribal lands.
Rural health care
The rural health care program provides subsidies for “tele-health and tele-medicine,” typically a combination of video-conferencing infrastructure and high speed Internet access, to enable doctors and patients in rural hospitals to access specialists in distant cities at affordable rates. The Rural Health Care Support Mechanism allows rural health care providers to pay rates for telecommunications services similar to those of their urban counterparts, making telehealth services affordable.
The Rural Health Care program provides funding to eligible health care providers for telecommunications services, including broadband, necessary for the provision of health care. The goal of the program is to improve the quality of health care available to patients in rural communities by ensuring that eligible health care providers have access to affordable telecommunications services. Over $417 million has been allocated for the construction of 62 statewide or regional broadband telehealth networks in 42 states and three U.S. territories under the Rural Health Care Pilot Program. In 2013, the rural heath care program paid out $159 million.
Schools & Libraries Program (E-Rate)
The E-Rate program provides subsidies for Internet access, telecommunications services, internal infrastructure and basic maintenance of internal connections to schools and libraries. The subsidies pay a percentage of costs based on need, with rural and low-income schools receiving the greatest subsidy. This support goes to service providers that provide discounts from 20% to 90% based on the level of poverty and the urban/rural status of the population served.
Eligible schools, school districts, and libraries may apply individually or as part of a consortium, and must provide the hardware and software elements that are necessary to utilize the connectivity.
In 2013, the e-rate program paid out $2.20 billion. USAC has more than $37.3 billion in E-Rate funding commitments and $26.8 billion in E-Rate funding disbursements issued to schools and libraries nationwide through the E-Rate from 1998 to 2013.
The Schools & Libraries Program provides affordable telecommunications and Internet access services to connect schools and libraries to the Internet. This support goes to service providers that provide discounts on eligible services to eligible schools, school districts, libraries, and consortia of these entities. The amount of the discount depends on the level of poverty and location of the school or library receiving service. The discount ranges from 20% to 90% of the cost of eligible services.
Universal Service Administrative Company
Following the Telecommunications Act of 1996 and the subsequent creation of the Universal Service Fund, the FCC designated the independent American nonprofit corporation named the "Universal Service Administrative Company" (USAC) to manage the contribution of revenue to and distribution of funding from the Universal Service Fund. The Schools and Libraries Corporation and the Rural Health Care Corpation were merged into the USAC on January 1st, 1999. The USAC is a subsidiary of the National Exchange Carrier Association, and is governed by a 19-person board of directors representing various stakeholder interests and carries out rules adopted by the FCC. The company has 356 employees.
USAC reports quarterly revenue projections detailing what contributions are expected and detailing what actions are taken in the expansion and bolstering of universal service. The USAC receives contributions from all companies providing interstate and international telephone and Voice over Internet Protocol (VoIP) service. Contributors send payments based on projected quarterly earnings. The FCC does not require companies to charge their customers for these contributions - this funding decision is left up to the individual companies. This revenue is deposited into a central fund, from which the USAC distributes money to the four central services at the core of the USF: High Cost, Low Income, Schools and Libraries, and Rural Health Care.
In the past, only long distance companies made contributions to support the federal Universal Service Fund. The Telecommunications Act of 1996 expanded the types of companies contributing to the Universal Service Fund. Currently, all telecommunications companies that provide service between states, including long distance companies, local telephone companies, wireless telephone companies, paging companies, and payphone providers, are required to contribute to the federal Universal Service Fund. Carriers providing international services also must contribute to the Universal Service Fund. In June 2006, the FCC voted to require providers of VoIP services to contribute to the Universal Service Fund the same way traditional telephone services had been contributing.
While the USAC cannot act without Congressional approval, it can make recommendations. USAC recommendations have resulted in expanding telecommunication resources, particularly broadband Internet and mobile access to schools and libraries, and recognizing VoIP as a form of interstate and international communication, which requires those companies providing VoIP services to contribute to the USF.
Wide disagreement over the nature and administration of the USF exists in telecommunications policy circles. Such disagreements fragment traditional partisan alliances in the United States Congress.
Fears continue to abound about what such subsidies mean, and how it will affect telecommunications in the long run. Discussions continue over whether the USF should be used to provide services such as broadband internet access. Groups like the Keep USF Fair Coalition and the Ad Hoc Coalition of International Telecommunications Companies work to educate about such controversies, in addition to taking action when they feel that the FCC and Congress are overstepping their bounds.
Concerns about 2011 changes
In 2011, the FCC made material changes in the USF program, largely benefiting the largest traditional telephone companies in the country, which now have double the access to funding that they had before those changes. Smaller traditional and wireless carriers were given reduced access to support going forward, which means that unless the FCC makes future changes, the country will depend in large measure on two carriers to carry out broadband deployment and ongoing operations in rural areas in the future, and in very rural areas of the country, service may diminish.
Waste and fraud
The issue of waste and fraud, as with many government programs, has been addressed as well. Gilroy stated, "The ability to ensure that only eligible services are funded, that funding is disbursed at the proper level of discount, that alleged services have been received, and the integrity of the competitive bidding process is upheld have been questioned". Improved auditing of particularly the E-rate program has been addressed.
The rapidly changing interstate and international telecommunications markets can quickly and unpredictably bring about changes in USF funding levels. Dorothy Attwood of the FCC Wireline Competition Bureau stated, “One striking development that we’ve witnessed in the interstate marketplace is the steady decline of interstate revenues. Although traditional long-distance revenues grew consistently between 1984 and 1997, they’re now in a period of steady decline”. She pointed out that competition in the interstate long-distance market, wireless substitution, and bundling of service packages that blur traditional service categories are all reducing revenues that serve to finance the USF. Service providers simply transferred the cost to customers in the form of a long-distance surcharge to make up for reduced revenue. While the expenditures of the USF have increased since its inception, in part due to expansion of support paid to competitive providers, the revenues on which contributions are made -- interstate and international telecommunications revenues -- have become increasingly more difficult for contributors to identify as a result of evolution of services offered. Overall revenues reported by telecommunications companies have steadily increased, if information service revenues are included. However, the revenues for these services are no longer subject to contribution.
Expanding revenue sources
Debate over the Universal Service Fund has consistently involved the scope of the funding, which technology types and companies should fund the program, which groups should be eligible for benefits, and the need to clean up waste and fraud in the program.
Proposals have been made to increase the number of sources from which universal service fund is collected. This could include expanding contributions to include intrastate telephone services (calls within single states), voice over IP (computer-to-computer calls), and information services such as broadband, and increasing contribution requirements from wireless communication providers.
A draft proposal of the Telecommunications Act of 2005 was the subject of hearings in Congress. The proposal outlined a significant restructuring of the Telecommunications Act of 1996, ultimately the House of Representatives passed a bill, the Communications Opportunity, Promotion, and Enhancement Act of 2006 (COPE - H.R.5252.RS, S.2686). The bill was sent from the House to the Senate, where subsequent readings left it awaiting a legislative action. Under the proposed restructuring of the Telecommunications Act of 1996, greater emphasis on the wide availability of broadband and mobile access would be considered. Additionally, consideration of revenue contribution to the Universal Service Fund would be radically revised, given that the creation of obligatory broadband and mobile communication access would require a wide range of broadband, mobile, and Voice over Internet Protocol (VoIP) service providers to contribute a portion of their revenue to the fund. Lastly, the Act urged an FCC consideration of the universal service structure. The bill was not passed.
In January 2007, Senator Ted Stevens (R-AK) sponsored a bill (the Universal Service for Americans Act) that would increase universal service tax base to include broadband ISPs and VoIP providers, to fund broadband deployment in rural and low-income regions of the country. This bill was referred to committee, but as no further action was taken on it by the 110th Congress, the bill never became law. Since then the only congressional action has been H.R. 176, introduced by Congressman Bob Latta (R-OH) on February 13, 2009, which states that, “in order to continue aggressive growth in our Nation's telecommunications and technology industries, the United States Government should 'Get Out of the Way and Stay Out of the Way'.” It is currently in committee.
On July 22, 2010, the Universal Service Reform Act of 2010 was introduced by Representatives Boucher (D-Va) and Terry (R-NE). The measure is intended to improve and modernize the USF by reining in the size of the fund and promoting broadband deployment.
Supporting natural monopolies
In the interest of reducing waste, limited support to a monopoly universal service provider for each territory has been considered. Wireless technology is increasingly favored by consumers, and can cover a single territory often for less than landline technology. However, wireless has traditionally been a competitive industry, which has resulted in a variety of innovative services for consumers, but means that supporting wireless companies requires a complex understanding of how to allocate funding on a shared basis, in order to avoid injury to the positive forces of competition. Congress enacted significant laws, enforced by the Department of Justice, ensuring curbs on laissez faire economics for the good of the population after antitrust abuses of prior centuries.
Expanding mission beyond telephone
The concept of universal service may include other telecommunications-information services, mainly Internet access. Members of Congress have spoken out in favor of increased contribution to the USF from alternate sources.
Many of the services covered by the USF are related to traditional telephone technology. There is a rising concern that more recent developments in telecommunications are just as important to the consumer as these older technologies. For example, consumers' subscriptions to traditional telephone services have fallen while their subscription rate to wireless services have been rising consistently. Yet many cellular companies are likely to receive less funding under the new rules, which may reduce consumers' access to wireless services in areas of the country that have low populations. Similarly, a question currently debated is whether access to broadband internet should be supported by the USF and if so, how best to fulfill such a large mandate without damaging the stability of the fund. The Telecommunications Act of 1996 states that "advanced services" should be accessible to all Americans [Section 254(b)(3)]. One question is whether the providers of internet access should contribute to the fund like other companies that provide access to telecommunications, if such providers also want to draw from the fund. Supporters of including internet access in the Universal Service Fund include former Congressman Rick Boucher (D-VA)
Adding additional services to the fund has corporate support from major telecommunication companies, including Verizon and AT&T. In March 2009, senior executives from Verizon Communications met with the House Subcommittee on Communications, Technology, and the Internet, providing recommendations for how best to proceed, bringing broadband and mobile communication access to rural and unserved areas. Citing reform to the Universal Service Fund as a means "to better serve rural America," Verizon recommended that a limit be set on the size of USF's high-cost fund; competitive bidding wars be employed to determine which company expand service to unserved areas; structure a "wire-center approach" model to replace statewide cost averaging; restructure how contributions to the USF are determined; and impose a deadline on the FCC for completion of their reform of inter-carrier compensation.
In October 2011 the FCC formally proposed a "Connect America Fund" to address these and other concerns. Reform finally arrived on October 27, 2011, when the FCC approved a six-year transfer process that would transition money from the Universal Service Fund to a new $4.5 billion a year Connect America Fund that will support the expansion of broadband services to areas that don't have broadband access yet.
- National broadband plans from around the world
- Rural electrification
- National Exchange Carrier Association
- "USAC 2013 Annual Report". Universal Service Administrative Company. Retrieved 12 Nov 2014.
- Federal Communications Commission. "Universal Service Fund Contribution Factor & Quarterly Filings". Retrieved 20 Nov 2014.
- "Understanding Your Telephone Bill". New Hampshire Office of Consumer Advocate. Retrieved 20 Nov 2014.
- "Understanding Your Telephone Bill". FCC. Retrieved 20 Nov 2014.
- Aufderheide, P., & United States. (1999). Communications policy and the public interest. New York: Guilford Press.
- Communication Act of 1934. (1934). Amended by the Telecommunication Act of 1996. Retrieved July 18, 2009 from http://www.fcc.gov/Reports/1934new.pdf
- Jayakar, K. (2009). Universal Service. In Schejter, A. (2009). And communications for all: A policy agenda for a new administration. Lanham, MD: Lexington Books.
- Federal Communications Commission. (2009). Universal Service section. Retrieved July 16, 2009 from http://www.fcc.gov/wcb/tapd/universal_service/
- BOB PORTERFIELD (14 Jan 2007). "Cell Phone Subsidies Enrich Telecoms". Washington Post. Retrieved 12 Nov 2014.
- Gross, Grant (27 Oct 2011). "FCC Votes to End Telephone Subsidies, Shift to Broadband". PC World. Retrieved 9 November 2011.
- "Connect America Fund & Intercarrier Compensation Reform Order and FNPRM Executive Summary". Federal Communications Commission. Retrieved 9 November 2011.
- Jordan Malter (26 Oct 2012). "Who gets rich off 'free' government phones". CNN Money. Retrieved 12 Nov 2014.
- Kelly Phillips Erb (12 Feb 2012). "Are Taxpayers Paying for Free Cell Phones?". Forbes. Retrieved 12 Nov 2014.
- Brad Tuttle (8 Feb 2012). "How to Get the Government to Cover Your Cell Phone Bill(s)". Time. Retrieved 12 Nov 2014.
- Federal Communications Commission, "FCC Reforms, Modernizes Lifeline Program for Low-Income Americans", FCC 12-11, February 6, 2012, Washington D.C.
- "The Universal Service Fund: Lifeline Program Modernization", connectednation.org, summary.
- The Lifeline Fund: Money Well Spent?: Hearing Before the Subcommittee on Communications and Technology of the Committee on Energy and Commerce, House of Representatives, One Hundred Thirteenth Congress, First Session, April 25, 2013
- "Lifeline Program for Low-Income Consumers". Federal Communications Commision. Retrieved 20 Nov 2014.
- , Iowa Utilities Board
- "What is E-Rate". Funds for Learning. Retrieved 20 Nov 2014.
- Staff (1 Jan 1999). "SLC becomes part of Universal Service Administrative Co.". eSchool News. Retrieved 20 Nov 2014.
- "Board Members". USAC. Retrieved 20 Nov 2014.
- "Who must contribute". Universal Service Administrative Company. 12 February 2008.
- Anne Broache (21 Jun 2006). "FCC approves new Internet phone taxes". Cnet. Retrieved 20 Nov 2014.
- "Federal Universal Service Support Mechanisms Quarterly Contribution Base for the First Quarter 2009". Universal Service Administrative Company. Retrieved 17 July 2009.
- Jonathan S. Marashlian, Jacqueline R. Hankins, & Linda McReynolds. "The Mis-Administration and Misadventures of the Universal Service Fund". Retrieved 20 Nov 2014.
- Peres, K. (2007, Winter). Subverting the public interest: Deregulation in the telecommunications industry. New Labor Forum, 16(1), 87-95.
- Fitchard, K. (2008, September). Broadband for all. Telephony, 6-8.
- Gilroy, A. (2007). Universal service fund: Background and options for reform. [Washington, D.C.]: Congressional Research Service. Retrieved June 26, 2009, from http://lieberman.senate.gov/documents/crs/servicefund.pdf
- United States. (2005). The future of universal service: Ensuring the sufficiency and stability of the fund: hearing before the Subcommittee on Communications of the Committee on Commerce, Science, and Transportation, United States Senate, One Hundred Seventh Congress, second session, June 19, 2002. Washington: U.S. G.P.O.
- The Library of Congress. (2009). S.101. Retrieved from http://thomas.loc.gov/cgi-bin/bdquery/z?d110:s101:
- The Library of Congress. (2009). H.RES.176. Retrieved from http://thomas.loc.gov/cgi-bin/bdquery/z?d111:h.res.176:
- BOUCHER, TERRY INTRODUCE UNIVERSAL SERVICE REFORM ACT OF 2010 at the Wayback Machine
- Subcommittee on Communication, Technology and the Internet. Statement of Congressman Rick Boucher, USF: Reforming the High Cost Funds. (2009, March 12) Retrieved July 17, 2009, from http://energycommerce.house.gov/Press_111/20090312/boucher_open.pdf
- Verizon (12 Mar 2009). "Stimulus Grants, Subsidy Reform Key to Making Broadband Internet Available to All". PRNewswire. Retrieved 17 Jul 2009.
- details Universal Service Fund switch to broadband Electronista, Oct 9, 2011.
- "Are cell phones a civil right? Critics hit out at $4 billion a year free mobiles for the poor:, The Daily Mail, 4 August 2011
- "The Free Obama Phone: Real or Urban Legend? :, Free Government Cell Phones, 24 February 2011
- FCC website
- Universal Access (Free Press)
- Universal Service Administrative Company
- Committee on Energy and Commerce