Universal Service Funding in Need of Serious Reforms

In the past, we’ve detailed the many problems and issues with the Universal Service Fund.  For those unaware, the Universal Service Fund (USF) applies a tax to the phone bill of every customer in the US who utilizes interstate telephone services. This means just about everyone pays into it.  This tax, generating roughly $8 billion per year in revenue, is meant to subsidize telecommunications services in rural, low-income, or underserviced areas.

 

The USF was created to make telephone service affordable and available to everyone in the country, regardless of ability to pay for the service.  Over the years, new things have been added—in addition to telephone service for low income customers, the organization supports service to outlying and rural areas, broadband services for the purpose of doctors teleconferencing with their patients in rural areas, and broadband Internet services and infrastructure to schools and libraries.

 

But there are many problems with the USF.  The USF has been a complete money pit. One study shows that fifty-nine cents of every dollar paid into the USF goes to paying for overhead, and not the intended purpose of providing phone service to low-income and underserviced areas.  The USF also suffers from a lack of purpose. In a world that relies less and less on wired telephone service, the USF seems less and less necessary.  In an address to an audience in February of this year, FCC Chairman Julius Genachowski acknowledged:

 

“The program is still designed to support traditional telephone service.  It’s a 20th century program poorly suited for the challenges of a 21st century world.

 

Where USF has changed over the years, it’s too often changed for the worse. However well-intentioned, policies have been put in place over the years that today are weighing the program down.”

 

If the fact that fifty-nine cents out of every dollar put into the fund goes to administrative costs isn’t enough to sway you that the USF is wildly inefficient, then maybe some of the new directions that the USF is being pointed in is.  In Pennsylvania, a program was recently launched that provides cell phones to people on food stamps.  The USF was started to provide vital phone services to those in rural areas.  Are we really to believe that cell phone service for low-income people is a vital need?

 

Although some feel that the USF should be scrapped, others, including FCC Chairman Genachowski, feel the resources of the USF should be put towards the next frontier in telecommunications—broadband.  Under a plan proposed by Genachowski, the majority of the $8 billion fund would go towards building out broadband Internet service for up to 30 million Americans who currently can’t afford or can’t access broadband Internet.

 

The Universal Service Fund is overrun with corruption, waste, and very little oversight to ensure that the funds are being put to good use.  In a perfect world, we would do away with the USF—there’s no need to subsidize a product that is both non-vital, and already relatively cheap and accessible to the average consumer.  But doing away with the USF isn’t a reality, and therefore we need to look at alternatives.  Before any change in mission happens, these reforms need to happen.  It needs serious reform, and not just in scope.  It needs a complete reform, with a clear mission, and clear oversight.  Only then should the USF begin to shift its resources to broadband over telephone service.

 

Zack Christenson is a Chicago-based digital strategist who writes on tech policy.

 

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