This story appeared on Network World at

http://www.networkworld.com/columnists/2006/073106bradner.html

From the Universal Service Fund to universal taxation

'Net Insider

By Scott Bradner Network World, 07/31/06

In theory at least some of what the Universal Service Fund (USF) is being used for is both a good thing to do and has some connection to the funding source. But like many things, theory and practice can be rather far apart.

Making the situation worse, the FCC has just noticed that the rate at which money is going into the USF is falling behind the rate that it is being spent and has decided to implement a temporary way to throw more of our money into the pot.

The USF was established with an abundance of good intentions to "promote the availability of quality services at just, reasonable, and affordable rates; increase access to advanced telecommunications services throughout the Nation; 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" (See welcome comment.)

The money came from a tax on long-distance and international phone calls. It makes some sense to tax some types of phone calls to ensure that the people all over the United States can get phone service.

But the use of the USF was expanded in the late 1990s to also subsidize Internet service to schools, libraries and rural heath centers (see "Flavors of universal access," Bradner, 6/16/97). Clearly, these are worthy causes, but it's hard to see the justice in taxing phone calls to subsidize Internet service. Sort of like taxing newspapers in order to subsidize go-carts. The USF is just a convenient pile of money.

A few months ago the FCC decided to deregulate DSL services. One impact of that decision was that DSL lines were no longer taxed for the USF.

The FCC is now scrambling to replace that money at a time when the USF continues to spend more money - about $6.5 billion in 2005, up from $4.4 billion in 2000. The FCC has now decided, as an interim solution, to extract more money from cell phone users and to start taxing many VoIP users (see the new FCC rule). This rule needs to be an interim solution, because it's hard to extract money from long-distance users fast enough to keep the USF filled.

One side impact of the new rule is that all "interconnected VoIP providers" (those where one can call to and from the PSTN) must register with the FCC and hire some company in Washington, D.C., to deal with FCC paperwork. This requirement applies even to those VoIP providers whose revenue is below the threshold where they would be required to send money to the USF. This is the first time that I know of where everyone providing some type of Internet-based service in the United States is required to register with the government - not a good precedent.

It's hard to tell how much money would be needed for the USF if its purpose was to get phone service to rural Alaska - which is the excuse for continuing the USF given by two of the FCC Commissioners - and other underserved locations. But we are not likely to find out. Politicians and the FCC will continue to use this 10%-plus tax for things unrelated to phone service - good things (maybe) but not things to tax phone bills for.

Disclaimer: Good things (maybe) is a common refrain about Harvard's Activities, but the university has not expressed an opinion on the USF. I just have.