A New Path Forward for Funding Universal Service Programs in the US
Along with a great group of seasoned experts in their respective fields, I recently started the Vernonburg Group — a management consulting firm for the digital divide. As part of that transition, we are pleased to be able to share some of our views on issues relevant to closing the global broadband gap. The first seemingly mundane issue I would like to address is the topic of universal service contribution reform — in essence, changing the way in which the US Government raises funds to pay for approximately $10B per year in universal service subsidies to enable network operators to provide broadband to unserved rural communications and discount the cost of services to low-income consumers, schools and libraries, and rural healthcare providers.
Back in 2000, when I was a much younger attorney at the Federal Communications Commission, I worked on the first universal service contribution reform Notice of Inquiry and Notice of Proposed Rulemaking. Yes, that was 20 years ago! Since that time, the universal service contribution factor (the percent of “end-user interstate and international telecommunications revenues” on your bill that will be assessed to pay for various universal service programs) has risen from under 6% in 2000 to over 27% in the 4th quarter of 2020 (it’s funny seeing my name on some of those early public notices). This rise in the contribution factor has meant that a higher and higher portion of your phone bill goes towards funding the various federal universal service programs. In addition to the increasing size of the FCC’s various universal service programs, the rise in the universal service contribution factor is a result of the rise of the Internet and the shift of customers’ spending from telecommunications services (like fixed and mobile calling on the public switched network) to information services (like broadband access and various IP-based applications). This has translated to a shrinking assessable contribution revenue base and a rising contribution factor.
While we can debate the details, I hope we can all agree that universal service programs are needed — especially in light of the COVID-19 pandemic, which has further exposed social and economic inequities and lack of opportunity suffered by tens of millions of Americans on the wrong side of the digital divide. For example, there should be no debate that we need to make sure that rural communities have access to broadband and that all school children can be educated online. So, the rising contribution factor certainly is cause for alarm.
Over the last 20 years, various proposals have been put forth to reform the universal service contribution mechanism. These proposals have primary fallen into two camps — expand the revenue base to include information services or abandon the revenue-based collections and instead assess a customer’s number of connections or numbers. After 20 years of debating this issue, neither set of solutions has emerged as the clear winner. This is for good reason. Expansion of the revenue base to include information services is hugely unpopular with companies that have avoided paying into the universal service program. Connections and numbers raise a host of implementation and enforcement issues. Both sets of proposals risk exacerbating existing marketplace distortions and introducing new ones. And, both sets of proposals raise legal issues with regard to the FCC’s jurisdiction.
So, what’s the answer? We need to fund for universal service programs in a manner that minimizes marketplace distortions; in essence, collecting the money from as wide a base of contributors as possible. That means we really need to consider funding universal service programs — especially any new funding — from Congressional appropriations.
Some will argue this approach risks further introducing politics into the universal service system. But, we will need to accept further congressional scrutiny of these programs as the price to pay for a stronger, fairer, and more sustainable funding mechanism. It has been good to see that the latest proposed federal COVID relief legislation, The The Heroes Act, would appropriate funds to close the homework gap, for emergency home connectivity, telemedicine grants, and broadband mapping. Moreover, larger amounts broadband funding in proposed infrastructure legislation would fund broadband expansion through appropriations. This approach also has some support in industry. For example, I was really pleased this summer to see a blog from Joan Marsh from AT&T observing that the current proposals I describe above “might just be a temporary band-aid at best” and proposing that federal universal service programs be funded through Congressional appropriations. I completely agree. And, now is a good time to begin this transition.
