Congress and the FCC can save the USF from sinking sand

One glimmer of hope from the pandemic: The Universal Service Fund (USF), the government fund designed to make sure everyone in the United States is digitally connected, finally may get an overdue overhaul. While lawmakers and policymakers long have recognized the need for a rebuild, the pandemic made it clear that reform no longer can wait. Taxing seniors’ disappearing landlines to subsidize lower-income Americans’ ballooning broadband fails our most vulnerable populations and undermines economic growth. 

Daily life increasingly is dependent on broadband, while government funds to support it have hinged on a dying breed of telecommunications: landline telephones. Our country’s universal service programs are funded by an ever-increasing charge applied to traditional phone service. This “tax” — known as the contribution factor, with origins more than 100 years old — no longer reflects our modern reality. One USF program called Lifeline, for example, only subsidized landline phone service in 1996, but in 2006 was expanded by the Federal Communications Commission (FCC) to include wireless phone service. Then standalone broadband service was added to the program in 2016. Unfortunately, the funding source did not expand or evolve. 

USF program expansions to add broadband were fitting to keep up with the times, but the program’s funding structure has lagged behind. It’s as if we’re funding road construction with taxes on horses and buggies. Today, the Universal Service Fund — which supports the Connect America Fund for rural areas, Lifeline for low-income consumers, E-rate for schools and libraries, and the Rural Health Care Program — only siphons from an evaporating pool of voice revenues to support a telecommunications ecosystem that has expanded enormously. Most USF funds now go toward broadband connectivity and related capabilities, and properly so.

Because the revenue sources USF assesses continue to shrink, the contribution rate has gone up (and up and up) to maintain the same level of funding for the programs. In 2004, more than 90 percent of U.S. adults lived in households with a landline phone. Today, it’s less than 37 percent and this number continues to decrease. As a result, while the contribution factor tax was just 8.7 percent in 2004, by 2021 it had reached 33.4 percent.

The current funding structure is not only unsustainable, but the Government Accountability Office issued a report explaining that a high contribution factor unduly burdens low-income and older Americans, because the USF taxes services that these groups disproportionately rely upon and consumes a larger share of their incomes. It’s past time to pull USF out of the 20th century, but it is the right time for a bipartisan approach to fix this obvious gap in our digital readiness.  

On Nov. 15, 2021, President Biden signed the bipartisan Infrastructure Investment and Jobs Act, which directs the FCC to submit to Congress a report on the future of the Universal Service Fund, for which the FCC solicited comments that were due this week. While the political will to effect change was lacking in the past, this time the clarion call should empower Congress and the FCC to work together to develop a long-term solution that will keep the USF’s coffers filled and our goal of universal broadband achievable.

Instead of tinkering with the existing funding mechanism, it’s time for fundamental change. Moving to a system of direct appropriations would be appropriate for this group of programs, since all sectors of our economy and society broadly benefit from broadband for all. This would be the most efficient, equitable and sustainable funding source possible. If adding an $8 billion line item to the annual congressional budget is deemed untenable, policymakers should look for alternative and sustainable sources of support, matching costs of universal broadband more closely to those companies that most handsomely profit from it. Since the goal is universal and accelerating broadband use, policymakers might resist increasing the price of these services through taxes and fees that get directly passed along via consumer access costs.

Without reform, it’s only a matter of time before the Universal Service Fund collapses under its own weight. It’s time to stop over-taxing Grandma’s landline on a hopeless mission to save the system from sinking sand. Together, Congress and the FCC can fix the USF and put it on solid ground.

Kim Keenan is ​​executive vice president for marketing and research for Odyssey Media. and Bruce Mehlman served as Assistant Secretary of Commerce for technology policy. The authors co-chair the D.C.-based Internet Innovation Alliance (IIA).