Last month I shed some light on the Federal Universal Service Fund (FUSF), and how it increased on July 1, 2020. This month we will expand on the FCC and the Universal Service Fund as kind of a history lesson. But also with the goal of keeping you informed about your monthly phone costs.
All of the information shared here was obtained directly from various FCC websites.
The Federal Communications Commission was established on June 19, 1934, to replace the outdated Federal Radio Commission. As communications expanded and television became more prominent, the FCC’s duties were expanded to include regulating all forms of communication in the United States.
The Federal Communications Commission (FCC) is an independent government agency responsible for regulating the radio, television and phone industries. The FCC regulates all interstate communications, such as wire, satellite and cable, and international communications originating or terminating in the United States.
Universal service is the principle that all Americans should have access to communications services. Universal service is also the name of a fund and the category of FCC programs and policies to implement this principle. Universal service is a cornerstone of the law that established the FCC, the Communications Act of 1934. Since that time, universal service policies have helped make telephone service ubiquitous, even in remote rural areas. Today, the FCC recognizes high-speed Internet as the 21st Century’s essential communications technology, and is working to make broadband as ubiquitous as voice, while continuing to support voice service.
Telecommunications companies must pay a percentage of their interstate end-user revenues to the Universal Service Fund. This percentage is called the contribution factor. The contribution factor changes four times a year (quarterly) and is increased or decreased depending on the needs of the Universal Service programs. You can read more about the contribution factor in the FCC’s Fact Sheet on Universal Service.
Quarterly Administrative filings are submitted each quarter to the FCC by the Universal Service Administrator. The quarterly administrative filings contain information about the needs of the Universal Service fund in the upcoming quarter. The FCC uses this information to calculate the contribution factor.
The Telecommunications Act of 1996 expanded the traditional goal of universal service to include increased access to both telecommunications and advanced services – such as high-speed Internet – for all consumers at just, reasonable and affordable rates. The Act established principles for universal service that specifically focused on increasing access to evolving services for consumers living in rural and insular areas, and for consumers with low incomes. Additional principles called for increased access to high-speed Internet in the nation’s schools, libraries and rural health care facilities. The FCC established four programs within the Universal Service Fund to implement the statute. The four programs are:
- Connect America Fund (formally known as High-Cost Support) for rural areas
- Lifeline (for low-income consumers), including initiatives to expand phone service for residents of Tribal lands
- Schools and Libraries (E-rate)
- Rural Health Care
The Universal Service Fund is paid for by contributions from providers of telecommunications based of an assessment on their inter-state and inter-nation end-user revenues. Examples of entities that contribute to the Fund are telecommunications carriers, including wireline and wireless companies, and interconnected Voice over Internet Protocol (VoIP) providers, including cable companies that provide voice service. The Universal Service Administrative Company, or USAC, administers the four programs and collects monies for the Universal Service Fund under the direction of the FCC.
HISTORY OF UNIVERSAL SERVICE AND THE UNIVERSAL SERVICE FUND
The Federal Communications Commission was created by the Communications Act of 1934. Universal service was one of the core mandates of that legislation, the purpose of which included making “available…to all the people of the United States…a rapid, efficient, Nation-wide, and world-wide wire and radio communication service with adequate facilities at reasonable charges.”
In 1934, telephone service was considered to be a “natural monopoly,” a service best delivered by one company rather than two or more competitors. The U.S. government allowed AT&T, then the monopoly provider, to operate in a non-competitive environment in most areas of the country in exchange for the federal and state government regulation of price and service quality. In areas that AT&T did not provide service, small companies, including cooperatives owned by residents of the local community, provided phone service. The concept of universal service evolved over the decades to mean the development of an infrastructure that provides telephone service to all consumers at a reasonable price. Funding for universal service came from a series of access charges that long-distance carriers paid as intercarrier compensation (ICC) to local exchange companies for originating and terminating the long-distance calls. Even after the breakup of AT&T in 1982, only interstate long-distance companies were required to contribute funds towards universal service.
The Telecommunications Act of 1996 was the first major re-write of the Communications Act of 1934. It opened up local markets to competition, which changed the dynamics of the existing system of funding universal service. The 1996 Act explicitly adopted principles to guide universal service policy. These principles include:
- 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 for the fund supporting universal service programs
In addition, the Telecommunications Act of 1996 directed the FCC to formalize what services a company must provide in order to receive support from the Universal Service Fund. For example, an eligible telecommunications company must be able to demonstrate its ability to remain functional in emergency situations. The Act also expanded the universe of companies required to pay into the fund from only interstate long-distance carriers to include all telecommunications carriers (regardless of whether they are wireline, wireless or satellite companies). The Telecommunications Act of 1996 led to the creation of the Universal Service Administrative Company, or USAC, an independent, not-for-profit corporation designated as the administrator of the federal Universal Service Fund by the FCC. The Act also called for the creation of a Federal-State Joint Board on Universal Service to make recommendations to implement the universal service provisions of the Act. This Joint Board is comprised of FCC Commissioners, State Utility Commissioners, and a consumer advocate representative.
The Universal Service Fund provides support through four programs:
- High-Cost Support (now known as the Connect America Fund) provides support to certain qualifying telephone companies that serve high-cost areas, thereby ensuring that the residents of these regions have access to reasonably comparable service at rates reasonably comparable to urban areas
- Low-Income Support, also called the Lifeline program, assists low-income customers by helping to pay for monthly telephone charges so that telephone service is more affordable
- Schools and Libraries Support, also known as the “E-Rate,” provides telecommunication services (e.g., local and long-distance calling, both fixed and mobile, high-speed data transmission lines), Internet access, and internal connections (the equipment that delivers these services to particular locations) to eligible schools and libraries
- Rural Health Care Support allows rural health care providers to pay rates for telecommunications services similar to those of their urban counterparts, making telehealth services affordable, and also subsidizes Internet access
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.
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.
In June 2015, the FCC announced steps to modernize and reform Lifeline for broadband. Public comments were sought, with a deadline of August 31, 2015. The collection of public comments are available here. The NDIA played a critical role in providing comments and encouraging others to participate in the process.
On April 1, 2016, the Federal Communications Commission voted to expand the Lifeline telephone subsidy for low-income Americans to include Internet access.
Additional details, including administrative filings from 2001 to 2020 can be accessed at https://www.fcc.gov/general/contribution-methodology-administrative-filings.