The Universal Service Fund: A Tug of War over Reform and What It Means for Us Today

by Latoya Livingston on October 24, 2011

This article concludes our series on USF Reform. It will continue to discuss the ideas and problems discussed during MMTC’s September 12, 2011 policy meeting.

The Universal Service Fund is supposed to balance the burdens that it puts on the customers who fund it with the benefits that it grants to the people that it serves, but is it doing that effectively and efficiently?

State and Locality Taxation of Customers Need to be Reeled in or USF May Suffer

The taxes associated with funding USF are beginning to become a noticeable chunk on telephone bills, so much so that politicians and consumer groups have been reeling at the extra fees that consumers have to pay, especially on their wireless bills. It has become ever more apparent that in the midst of our nation’s economic troubles, states and localities have been using wireless taxes to supplement their dwindling coffers.

Since USF is funded by taxes leveled on telephonic services, this impending push and pull can have a devastating effect on the money that can be garnered for the fund and broadband adoption rates. This is especially true if politicians turn to decreasing USF contributions as opposed to or in addition to curtailing state and locality telephonic taxation.

There has been discussion about capping states’ and localities’ abilities to tax their residents for their telephonic services, but this idea has faced sizable pushback from politicians who want to continue to rely on that golden egg-laying goose. One suggestion at MMTC’s open forum on USF was to have private companies, such as Google, AT&T, and Verizon, also contribute to the fund, but that suggestion didn’t get too much of a favorable response from the industry representatives on the panel.

Conundrums like this go to show how important the AT&T/T-Mobile merger could be for broadband buildout; it would take a lot of cost away from a government that currently can’t afford to pay for such a buildout on its own. Another suggestion that was floated was to have high bandwidth users, such as Flickr, Netflix, or other companies with a lot of traffic or online advertising revenue, pay into the fund, so the required contribution level would be connection based. I guess we will just have to wait and see if any of these suggestions have any traction.

Taking Away Funds from Telephonic Subsidies in Favor of Broadband Subsidies: Yea or Nay?

While all of the panelists could agree that USF funds need to be allocated toward broadband, there was stark disagreement about how much money should be allocated between the two.

One argument contends that there should be a full transition from telephonic subsidization to broadband subsidization because broadband products and services such as VOIP (voice over Internet protocol) providers Vonage and Skype could fill the void. One panelist also questioned the need for USF funds for voice services, since factors such as competition and improved technology have driven prices associated with telephonic services extremely low. But low-income consumer advocates were quick to point out several mitigating factors for many low-income households: they don’t have the funds to purchase the equipment necessary to access those tools, are already comfortable with the current system, the current system is cost efficient for them, or they simply aren’t informed enough on broadband use to actually use those services.

In the end, the closer that the nation comes to connecting more people, the costlier those new connections are. This hockey stick shaped funds chart is going to be one of the most contentious and difficult issues that has to be overcome. We just have to be vigilant over the next few months to see where the FCC will come out on this topic; all the while trusting that the best interests of all parties involved will be considered.

Spurring Intelligent Open Debate through the Best Minds Policy Committee

These were just small slivers of the issues addressed in this rousing policy committee meeting. In the meantime, we can all look forward to more stellar debate and education on this issue and others at future MMTC policy committee meetings. These meetings are a unique ability for the public, private, and everyday people’s voices to be heard in a neutral environment.

I, for one, am looking forward to the next few meetings that promise to focus on topics such as regressive taxation, privacy and security, and spectrum policy. You can check MMTC’s Web site and Web mailings for information on how you will be able to attend these one-of-a-kind expert forums.

  • Latoya Livingston

    Latoya Livingston is a Washington, D.C.-based attorney with years of experience working in the public and private sector. Attorney Livingston joins MMTC after performing pro bono work for the organization last year.

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  • JCraigDC

    It will definitely be interesting to see how consumers react to the potential changes to the USF particularly use of VOIP for low-income consumers.  I can see where there may be concern because many consumers, especially older ones, aren’t comfortable with the installation process or with a technology that they cannot easily troubleshoot — for free — if something goes wrong.  However, once installed, VOIP acts just like a regular telephone AND allows for broadband to the home.  Win-Win.  Before we can do that, the FCC needs to clearly state their authority to apply funds for low-income services including voice AND information service for broadband.

  • 4bascoo

    Very good article. It seems to me the ordinary consumer always end up with the messy end of the stick no matter what the officials decide.

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