An Introduction to the Universal Service Fund: How We Can Use it to Bolster Broadband Adoption

by David Honig on January 6, 2011

The Universal Service Fund (USF) is a common fund that helps support the provision and maintenance of basic telephone services to residents in rural parts of the country, monitored primarily by the Federal Communications Commission (FCC). While this may sound archaic, it has very important present-day applications – especially when applied to broadband.

USF History

The notion of universal service has long been a fundamental component of telecommunications policy in the United States. As telephone networks were being extended across the nation in the early part of the 20th century, regulators and the American Telephone & Telegraph Company, the dominant service provider, reached an agreement that would assure that every person in America, regardless of where they lived, would be able to access and use the service. Over the course of the next century, the dominant service provider was able to maintain a monopoly over the telephone network in exchange for assuring a minimum level of service for every person in the United States.

Even after the government broke up the telephone monopoly in the early 1980s, policymakers at the federal and state levels continued to work with local service providers to ensure that residents continued to have equal access to these critical services. These arrangements were formalized and bolstered in the 1990s with the creation of the Universal Service Fund.

Traditional telephone service providers and wireless service providers are required to contribute to the USF in the form of per-subscriber fees. This means that tens of millions of subscribers pay a small monthly fee to subsidize telephone service in those parts of the country that are very expensive to serve. Part of the Fund is also used to offset monthly telephone bills for qualifying users such as low-income households.

During the era when basic telephone service was the primary means of communication, the USF was an essential program, assuring that nearly every American had access to a telephone line. But during the modern era, when nearly a quarter of all households rely on their cellphones to make calls, when the total number of subscribers to basic telephone service continues to decrease by millions each year, and when broadband-enabled calling platforms like Skype are becoming increasingly popular, the USF looks like an antique from a bygone era of rotary phones and switchboards – The USF has not been significantly reformed since its launch. It continues to collect billions of dollars each year to support the provision of basic telephone service to rural areas.

21st Century Applications

In this new world, where cellphones and broadband connections are the primary vehicles for communication, many agree that it is time to drastically reform the USF. Reform efforts to date have focused on reducing the size of the fund and on more precisely targeting how the funds are ultimately used. Equally as important, over the coming months, the FCC and others will begin to consider how to transition the fund away from only supporting basic telephone service and toward supporting broadband services.

These efforts, which will be guided in part by recommendations put forward by the FCC in its National Broadband Plan, provide a unique opportunity to make sure that a significant portion of the funds are targeted at increasing broadband adoption among demographic groups that remain largely offline.

As previously discussed on the Broadband & Social Justice blog, more than half of all African Americans, Hispanics, senior citizens, people with disabilities, and households earning less than $25,000 per year remain unconnected to broadband at home. Targeting USF funds at these groups and providing qualifying users with monthly subsidies for broadband could bolster the adoption rate across these demographics. Moreover, USF reforms focused on bolstering mobile broadband availability and connectivity in certain areas will be a boon to minority users, who rely on wireless connections as their primary means of accessing the Internet more than any other group.

Forthcoming USF reform discussions provide a unique opportunity to refocus policy efforts on broadband adoption. The multi-billion dollar fund represents a ready-made resource for bolstering adoption efforts in numerous areas of the country. Ultimately, strategic use of these resources could ensure that 21st century communications are as inclusive as their 20th century predecessors. Doing so will favorably position all Americans for prosperity in the digital age.

  • David Honig is MMTC’s President and Executive Director. He co-founded the Minority Media and Telecommunications Council (MMTC) in 1986. MMTC has represented over 70 minority, civil rights and religious national organizations in selected proceedings before the FCC, and it operates the nation’s only full service, minority owned media and telecom brokerage.

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  • Guest

    I agree that USF must necessarily be extended to broadband and I hope that USF is coupled with broadband adoption efforts and digital literacy programs to ensure that citizens can take full advantage of the technology.

  • BBConnection

    Certainly!!! Targeting USF funds to the under-served communities who cannot afford broadband is a viable way to bolster broadband adoption.

  • DianneG

    Great idea!

  • LDG

    Excellent idea!

    This modernization of the Universal Service Fund could do a lot to close the digital divide.

  • Bill Edmonds

    I find it very interesting that in the 20th century, Americans decided to take steps and set policies to ensure that everyone who wanted a telephone had access at an affordable rate.

    Why aren’t we doing the same now, in the 21st century, for access to broadband and the Internet?

    This recommendation would do so. It is well thought out, and I hope it gets some traction.

  • John_Q_Public

    Thank you for the straightforward introduction to this program. Who knew it had so much potential! I hope that it will be extended to broadband someday.

  • JCraigDC

    Great solution for the digital divide. I hope this idea can make its way to Congress and not get lost in the “tax & spend” rhetoric. Sadly, there are some who view any govt program that assist poor people as “pork.” This is not the case. This is about applying govt funds in a manner that will best serve the people.

  • Sophia Witter

    Thanks for this — very informative! I agree that immediate USF reform is necessary and should focus even more so on groups that need it. From what I hear, so far there’s just a lot of talk and very little action. Hope that changes soon!

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  • Guest

    Just curious Mr. Honig….”more than half of all African Americans, Hispanics, senior citizens, people with disabilities, and households earning less than $25,000 per year remain unconnected to broadband at home.” What is your proposal for adoption to this demographic? Provide money for purchase, maintenance, upkeep of computers? Drop the price of broadband to what level – what is the magic price besides free? Just curious …..

  • PAUX

    The only problem is that this raises what the basic telephone user pays into this fund on a monthly basis. It has gone up 2.6%. This is an increase of the costs for the telephone use for individuals that cannot afford the costs of the broadband that this fund is being redirected to. I feel that the states should have their own internet services for their citizens, leaving the telecoms out of the equation thus decreasing the costs for all.

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