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Playing with our money: The FCC and the Universal Service Fund

By Scott Bradner

You, your company and I, along with just about everybody subscribing to telephone service in the US is hit with a surcharge on our phone bills that goes into a Universal Service Fund (USF). This fund started out with the simple goal of making telephone service affordable in rural, and this, high-cost parts of the country. Over the years, the USF goal has expanded (http://www.sobco.com/nww/1997/bradner-1997-06-16.html) to cover Internet service. At best, this has been a controversial program. (see From the Universal Service Fund to universal taxation http://www.networkworld.com/columnists/2006/073106bradner.html?fsrc=rss-bradner) Now the FCC is proposing to significantly rework the existing program.

On Feb. 8th the FCC released a "Notice of Proposed Rulemaking and Further Notice of Proposed Rulemaking." (It is a measure of maturity of a bureaucracy when they can double up the rulemaking in a single document.) This 289-page document (http://www.fcc.gov/Daily_Releases/Daily_Business/2011/db0209/FCC-11-13A1.pdf) basically says that the FCC proposes to keep spending USF funds but now for new and better things. Pardon me if I'm skeptical.

The latest FCC report on the USF (http://www.fcc.gov/Daily_Releases/Daily_Business/2010/db1230/DOC-303886A1.pdf) shows just how big (and messy) this puppy has grown. The USF spent $7.2 B in 2009 (the last year reported on in the December 2010 report). That is small potatoes in comparison to the total telecom industry revenues of $284 B the same year, down from $301 B in 2001, but real money none the less. One interesting factoid in the report - wireless revenue increased from $48 B in 1999 to $120 B in 2009, and that was before the post-iPhone smartphone explosion hit.

There are 4 parts to the USF (see http://www.fcc.gov/wcb/tapd/universal_service/): high-cost, intended to keep telephone service affordable in those parts of the country where it costs a lot to deploy phone service; low income, discounts on phone service for low-income people; schools & libraries, discounts for Internet service for schools and libraries; and rural health care, discounts on video conference and Internet services for rural health centers. About 60% of the USF went to the aptly named high-cost program in 2009. Very few observers, including the FCC Commissioners themselves, think that this is a well-run program. The FCC now plans to make this program more efficient and use the recovered money to expand broadband service to the parts of the country which is currently underserved broadband Internet-wise. The FCC says that 24 M Americans cannot get broadband service (other than satellite) even of they wanted to. There might be many reasons why the FCC has not fixed the high-cost program in years past but the one that springs to mind is that it is not the FCC's money.

The $7 billion that the FCC currently spends on these programs comes from us, you, me, your company and everyone you know. For some reason the USF "contribution" (the quaint term that one of the FCC Commissioners used) is seen as a fee and not a tax -- sure looks like a tax to me. Last month my own contribution to the USF was $6.88 plus whatever my VoIP provider pays. I have no idea what Harvard's contribution might have been but I expect I would not have wanted to pay it by myself. I note that only one of the Commissioners mentioned maybe reducing the amount of money that we contribute - the rest seem to think that our money is rightfully theirs and their job is to figure out how to spend it.

Universal Internet service would be nice but, based on the history of the USF, I very much doubt that the FCC is the most efficient way to achieve that goal.

disclaimer: I'm sure that Harvard laments watching whatever money it needs to contribute to the USF be so poorly used I did not get a formal opinion from the university so the above whine is mine.