Concerns Mount as USF Fee Portion of Phone Bills Shatters Records
The USF contribution factor continues to shatter records. Universal Service Administrative Co. released its quarterly demand projections Friday, and the contribution factor will increase from 31.8% in Q1 to a historic 32.7% for Q2, said analyst Billy Jack Gregg. It raises several questions about the fund’s sustainability (see 2012310027). Even if demand stays at the current level, the factor will continue to rise because the contribution base continues to decline, Gregg said.
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The growth is “spiraling,” Gregg said: From 2000-05, the factor was below 10%, then remained below 20% until Q4 2018. Since then, it has taken just over two years to exceed 30%. “At what point do people realize that this current system is not sustainable any longer?” Gregg said.
The rising contribution factor “should be [a] cause for concern for anyone who claims to care about universal service,” said Michael Romano, NTCA senior vice president-industry affairs. Policymakers have taken a “can kicked down the road” approach, despite touting the program’s various successes, he said. An NTCA report released last spring argued for expanding the contribution base to include broadband. The FCC declined to comment Monday.
The total currently spent on USF is “pretty much flat,” said Matt Wood, Free Press general counsel. But the base is shrinking, and consumers are paying a smaller share of the overall USF contribution as a whole, he said: “Exactly how that’s happening or where the money is hurting people more is all open to question.”
“It just keeps going up, and it has been for years,” said Public Knowledge CEO Chris Lewis. One of his concerns is that older Americans, who are more likely to rely on legacy telecom services, are disproportionately affected: “You have a small group of people increasingly bearing the burden for what is a benefit that is viewed by and large as a broadband benefit these days, even though it’s not charged to broadband services.” That assumption is "based on the stereotypical and now antiquated idea that older people don't use the internet, which is far less true as a rule today than it was even 10 years ago," Wood said: “We should really test that and see just what would happen to people’s contribution payments individually.”
The record contribution rate is “symptomatic of the urgent need to reform the USF funding mechanism,” said John Windhausen, Schools, Health & Libraries Broadband Coalition executive director. “The unpredictable rate increasingly burdens lower-income Americans, while also putting all of our essential USF programs at risk.” The FCC should broaden the contribution base “as soon as possible,” because waiting for Congress could be like “waiting for Godot," said Windhausen. Then-FCC Chairman Ajit Pai acknowledged the growing calls for USF revisions earlier this year and said it will likely be the next commission's greatest challenge (see 2101120066).
One potential roadblock is that making the contribution base part of the general fund could cause it to become a “political football” each year, Gregg said. Industry is more likely to prefer paying in and receiving the benefit back out, he said, but the “obvious problem” is that the base is shrinking and will likely continue to do so. “It’s well past time that the FCC comes to grips with the fact that they’re going to have to switch to a different basis for the contributions into USF to make it more sustainable,” Gregg said. Lewis also raised concerns about the fund “being held hostage” during annual appropriation debates. Wood said USF is already political and there are ways to establish multiyear allocations rather than a yearly appropriation.