- Republicans are split on how to fund the USF
- Reforming the USF could include bringing back the Affordable Connectivity Program
- But given the nature of politics, it’s hard to gauge what direction reform will take, if any
UPDATE: November 22, 2024 — The U.S. Supreme Court announced it will hear arguments as to the constitutionality of the Universal Service Fund.
A joint statement from NTCA–The Rural Broadband Association, Competitive Carriers Association (CCA), and USTelecom–The Broadband Association said the three organizations and "several other parties intervened in appeals challenging the constitutionality of the USF contribution mechanism in the circuit courts and, along with the federal government, petitioned the Supreme Court to review the Fifth Circuit decision declaring the contribution mechanism unconstitutional."
“We are grateful that the Supreme Court has granted certiorari and will review the Fifth Circuit’s finding that the universal service contribution mechanism is unconstitutional as currently structured. The Fifth Circuit’s decision is contrary to Supreme Court precedent and the decision of several other circuit courts of appeals, and it threatens to undermine universal service programs that, for many decades, have served to promote the availability and affordability of critical communications services for millions of rural and low-income consumers, rural health care facilities, and schools and libraries across the nation. We look forward to presenting arguments in defense of the USF contribution mechanism as the case moves forward, and ultimately to dispelling the uncertainty that these challenges have created in furthering our nation’s mission of universal service.”
November 12, 2024 — The Universal Service Fund (USF) has been stuck in legislative limbo, as the government wrestles with how to improve the subsidy program. Experts think USF reform could see momentum in President Donald Trump’s second term, but how that will pan out is a trickier question to answer.
The USF, which supports broadband access and affordability in rural and low-income communities, is made up of four smaller programs: Connect America Fund, Lifeline, E-Rate and Rural Health Care.
Contribution and the FCC’s role
One glaring problem with the current USF framework is the shrinking contribution base. Telecommunications service providers are required to contribute a certain percentage of their interstate and international service end-user revenues. However, those revenues have declined over time as more consumers use broadband as opposed to traditional telephone service.
So, who should pick up the tab?
New Street Research policy analyst Blair Levin said the Republican camp is split on the contribution issue. Federal Communications Commission (FCC) member Brendan Carr, who is a likely pick for FCC chair under a Trump administration, has argued broadband providers and tech companies should foot the bill.
Senator Ted Cruz meanwhile has said USF funding should come from congressional appropriations, meaning the funding would come from U.S. taxpayers.
“The outcome of the legal issue could affect the outcome of the contribution issue,” Levin said, referring to the Fifth Circuit’s ruling that deemed the FCC’s method for funding the USF unconstitutional.
The FCC has appealed the court’s ruling to the Supreme Court, and Levin guesses a Republican-led Commission will continue to do the same.
Some form of USF reform will “almost certainly have to happen” if only to address the legal uncertainty, said Joe Kane, director of broadband and spectrum policy at ITIF.
A key concern surrounding the USF’s legality is the FCC’s choice to delegate the administration of USF programs to a third party – the Universal Service Administrative Company (USAC).
As for the contribution mechanism, Kane thinks Cruz’s motion will be the frontrunner solution, “since he is likely to be the central voice on this issue in a unified Republican Congress and White House.”
John Heitmann, counsel for the National Lifeline Association (NaLa), said it’s not clear which path the Trump administration will take on USF contribution. But as for how the FCC’s approach to the USF (and other telecom issues) could change, he expects the Commission to take on “a more limited role.”
“Or at least a role that is more closely tethered to the statutory mandate that Congress has created for the agency,” he said. If there are major questions that need answering, “I think that you’re going to see the Commission point to Congress and say, ‘answer them, please.’”
Rethinking USF and low-income internet
Legal issues aside, there’s good reason to “substantially rethink” USF in the wake of the Broadband Equity, Access and Deployment (BEAD) program, Kane told Fierce.
“The lion's share of USF now goes to rural broadband deployment. That's nonsensical in a world where BEAD is funding universal deployment and low-earth orbit satellite service is available at comparable rates to traditional wireline service,” he said.
Kane thinks it would make more sense to “retool” the USF to focus on adoption barriers, which would include a revival of the Affordable Connectivity Program (ACP) “to operate as a more flexible version of Lifeline.”
Lifeline, which lowers the monthly cost of phone or internet service, “is screaming for reform,” said Heitmann. It only covers “a fraction” of the roughly 23 million households who were on ACP and provides a lower subsidy (up to $9.25/month) than the ACP’s $30/month allotment.
The USF has “a long history of bipartisan support,” and for that reason we’re likely to see movement on reform, he said. But Heitmann added there are “dozens” of broadband programs out there and that’s also worth examining to make sure there isn’t any wasteful spending.
“It’s important to take a look at how we rationalize them and how we make sure that we’re spending all this money wisely so we don’t, for example, overbuild networks that are already there,” he said
Politics haven’t changed
Scott Wallsten, president and senior fellow at Technology Policy Institute, thinks addressing USF reform won’t get any easier once Trump is back in office because the “underlying politics” of the USF haven’t changed. Congresspeople on both sides of the aisle like the program because it brings money into their districts, however “more money goes into Republican districts,” he said.
“That has always derailed reform discussions,” Wallsten said. “Because it’s hard to change anything when there’s so much politics behind it.”
While he does think the USF should be taxpayer-funded given the current contribution method is “highly regressive,” it’s hard to envision Congress pushing for more funding.
Congress is “going to be looking for any money that they can find to make it look like they’re reducing the deficit,” said Wallsten. “Any promises that they’ve made will have to be paid for somehow, and nobody’s promised anything on universal service.”
Too many missing pieces
Regarding the USF distribution issue, Levin said there has been “very little analytic work done” to define more precisely what we need to pay for in a post-BEAD world.
If the government believes satellite broadband is as good as fiber, “then closing the digital access divide will be accomplished once the BEAD dollars are spent, one way or another, and that reduces the size of funding necessary for USF,” he said.
He also thinks the government hasn’t done any work in analyzing the need for “a new ACP-like program.”
“In short, while I think there is momentum for USF reform, there are unanswered questions that are foundational for how reform should proceed,” Levin concluded. “Until they are answered, people are trying to put together a puzzle with pieces missing - always a frustrating task."
Read our reporting on what to expect from the Trump 2.0 administration here.