The Universal Service Fund (USF) was created by the Federal Communications Commission (FCC) to subsidize rural telephone services. The fund collects and distributes about $4.8 billion every year. Additionally, another $1.2 billion is collected for the Low income fund and $2.7 billion for schools and libraries E-rate fund, for a grand total of $8.7 billion. This is effectively a tax that does not benefit broadband services, only basic telephony.
The FCC is looking for public feedback on changes it wants to make to the USF and intercarrier compensation (ICC) system that would stimulate greater distribution of broadband services. The "Notice of Public Rulemaking and Further Notice of Rulemaking", FCC 11-13, released February 9, 2011 is a 289-page document seeking comments on a number of proposed changes that would modernize the USF and ICC.
There are several criticisms of the present USF and ICC administration:
* The fee is at 15.5% of the interstate revenue, which is considered high.
* Determining which service collects the fee is complex.
* Some of the payments to rural providers are excessive, as much as $2,000 per line per month.
* Providers that receive the funds do not have the incentive to operate more efficiently.
* Not all the funds are being used for the purpose they were collected to support.
Whether supporting broadband service or not, the USF and ICC need to be improved and better administered. This gets us back to the FCC Notice of Rulemaking.
The Notice discusses both short- and long-term changes. Those not familiar with the USF and it operation should read the 14 page introduction which summarizes the past, present and future of the USF. The major points presented in the Notice introduction are:
1. Providing broadband service to all Americans is paramount.
2. Americans' access to universal service has been a core mandate of the FCC since its creation in 1934.
3. Providing ubiquitous broadband infrastructure is crucial for the economic health of the country.
4. Americans and businesses rely on fixed and mobile broadband services.
5. One in 13 Americans does not have access to broadband service, about 24 million.
6. The present funding programs are directed toward telephone, not broadband service.
7. There are fundamental inefficiencies in the fund’s administration.
8. The USF rules were crafted in the past century for the then-existing market.
9. Congressmen have voiced the opinion that the "USF is broken".
10. Four guiding principles are proposed:
* Modernize USF and ICC for broadband
* Control the USF size by reducing waste and inefficiency
* Require accountability from companies receiving the funds
* Transition to market driven and incentive based policies
The FCC is seeking comments on the principles presented. Sudden changes will be avoided during the transition to new policies. The FCC recognizes that the USF and ICC changes will require cooperation from both federal and state agencies.
The Notice provides the following statement as regards the transition to new policies:
Building on the recommendations of the National Broadband Plan and the record from the USF Reform NOI/NPRM, we propose to transform the existing high-cost program--the component of the USF directed toward high-cost rural and insular (which we often refer to a "USF" in this document)--into new, more efficient broadband-focused Connect America Fund [CAF].... We propose to undertake this comprehensive reform in two stages: a set of immediate reforms including, among other near-term goals, the establishment of the CAF, followed by the final selection of the long-term CAF funding mechanism, based on monitoring and evaluation of experiences with near-term reforms.
I expect that no matter what rules are proposed, service providers will have comments whose purpose is to benefit themselves, and consumer groups and business will probably have contrary comments. The rules will most likely be debated in Congress with political considerations that may hold back the changes, and some may try to stop the FCC from implementing some of the policies.
