For decades, Citizens Against Government Waste has called on Congress to eliminate the universal service fund (USF) program due to the waste, fraud, abuse, and mismanagement in the program and to alleviate taxpayers from a “hidden tax” found on their telephone bills, known as the USF fee.  On September 6, 2017, the Senate Commerce, Science and Transportation Committee held a hearing regarding the “Risk of Waste, Fraud, and Abuse in the Federal Communications Commission’s Lifeline Program,” which is funded through the USF fee.  Then-Chairman John Thune (R-S.D.) stated that “the bipartisan principle of universal service have [sic] been the bedrock of our nation’s communications policies for more than 80 years, and programs that efficiently and prudently further the goal of universal service have contributed greatly to our nation’s economy, and to the safety and well-being of Americans.” 

I was among the witnesses at this hearing, and Sen. Thune made clear to all in the room that despite serious issues with waste, fraud, and abuse, the programs supported by the USF, including Lifeline, will continue to provide resources to help Americans across the country communicate.  He did support revising the program to ensure the funding is allocated to where it is needed most. 

The Telecommunications Act of 1996 created the USF funding mechanism to help provide telephone service to areas of the country that are hard to reach (high-risk); rural health care; schools and libraries (e-rate); and low-come support (Lifeline and Linkup).  The funding is administered by the Universal Service Administrative Company (USAC) and increases to the contributions are approved by the Federal Communications Commission (FCC).

The companies paying into the USF funding include wireline phone companies, wireless phone companies, paging service companies, and certain Voice over Internet Protocol (VoIP) providers.  These fees or “contributions” are typically passed on to the consumer in the form of a “hidden tax” known as the USF fee typically found on the consumer’s telephone bill. 

Each quarter, the Universal Service Administrative Company (USAC), which signed a Memorandum of Understanding with the FCC in 1997, recalculates the amount of support it requires to continue funding the various USF programs, and develops a new contribution factor percentage based on a formula that balances a telecommunications service provider’s interstate and international end-user telecommunications revenues against anticipated expenses.  The final percent is then voted on and typically adopted by the FCC.  Congress plays no role in this process.

In 2000, when the FCC first began to track the USF contribution factor, the CF was set at 5.66 percent.  Yet, as the number of landlines and paging services decrease and the other services provided to Americans increase, so do the revenues and expenses for the USF fund.  While it took more than 10 years for the contribution factor to increase from its initial 5.66 percent to 12.9 percent, and then another eight years to increase to 20.1 percent, over the last two years the contribution factor has increased to an all-time high of 31.8 percent for the first quarter of 2021.

Americans should be concerned over this steady increase in the contribution factor.  Over the years, the FCC has expanded the low-income support program to provide wireless devices and most recently broadband service to low-income households and re-envisioned the high-cost fund to provide for broadband deployment through the Connect America Fund and the Rural Digital Opportunities Fund.  In addition, in the fourth quarter of 2020, the FCC mandated that the USF  provide funding for the Connected Care pilot program, which also increased costs to the program.

On top of these services, the global COVID-19 pandemic has required consumers to be digitally connected in order to work, shop, and learn in a virtual environment.  Millions of Americans who have lost their jobs now increasingly rely on programs like the low-income support fund to stay connected.  USF resources can be expected to become even more stretched and strained, possibly leading to even higher percentage rates for the contribution factor.

At a time when an increasing number of Americans are giving up their land lines in favor of mobile only or digital only services, the current funding mechanism for the USF is unsustainable.  It is past time for Congress to reevaluate the funding mechanism used to supply universal service and ensure that if this program is to continue it can do so in the most cost-effective way possible without additional strain on consumers and taxpayers.