Taxing the remaining household landlines to subsidize broadband is like collecting a toll from horse and buggies to advance electric cars. It makes no sense. But here we are in 2022, and America’s Universal Service Fund (USF) is a clear example of an outdated, government-created system that desperately needs congressional modernization.
Established in 1997 as part of the implementation of the 1996 Telecom Act, USF was designed to address our nation’s need for ubiquitous traditional telephone communications. This noble goal to connect everyone has been expanded every decade to support additional categories — with wireless phone service added in 2006 and broadband in 2016.
Unfortunately, at the same time, USF’s funding source has not expanded nor evolved; instead, traditional phone service is taxed more heavily, forcing landline consumers to shoulder disproportionate and hefty taxes. For example, in the third quarter of 2002, this “tax” (called the contribution factor) on traditional phone service was seven percent; in the third quarter of 2022, it’s 33 percent.
Due to a steep decline in landline use, USF’s funding shrank from $72.3 billion in 2010 to $47.5 billion in 2019, according to a yearly analysis by federal and state officials who monitor the fund. Consumers are continuously switching from landline phone service to IP-based alternatives that don’t pay into USF. The result: A runaway contribution factor, rising to offset shrinking revenues in order to maintain a steady amount of funding. Today, fewer than two in five U.S. households have a landline phone, according to the latest National Health Interview Survey (NHIS), but more than nine in 10 households had a phone connected to the wall in 1997 when USF began.
The role of broadband in our world is ever-expanding, and the need to fund its widespread availability is not going to end in the foreseeable future. At the same time, the landline phone is an endangered species headed toward inevitable extinction — so USF’s funding problem needs a new, modern solution.
While the Infrastructure Investment and Jobs Act (IIJA) established the $14.2 billion Affordable Connectivity Program (ACP), the act also called on the Federal Communications Commission (FCC) to submit a report on the future of USF and ways the commission may “improv[e] its effectiveness in achieving the universal service goals for broadband” — because even $14.2 billion won’t last forever. The window of opportunity to restructure the USF funding mechanism is now while the ACP funds cover immediate broadband needs and before congressional appropriations run out.
This month, the FCC published its report on the future of the Universal Service Fund, providing a roadmap to the future. Potential changes to the USF contributions system comprised one of the most hotly debated topics in the record, with “a diverse and wide-ranging group” supporting “further broadening the USF contribution base to include entities including “edge providers” such as streaming video providers, digital advertising firms, and cloud services companies rather than relying solely on the end-users — or consumers and enterprises — that have historically paid the line item fees passed through by providers.” But the FCC reported that only congressional action can provide the commission mandatory authority to assess edge providers. In sum: It’s your move, Congress.
Nearly 40 percent of households in the country qualify for the Affordable Connectivity Program. Once it runs out, those households could be relegated to digital disconnection if the USF can’t pick up the slack. The fund urgently needs to be transformed so that it can support access to broadband service for every American who needs it. No significant updates in federal law to reflect seismic shifts in the communications marketplace have been made to USF’s contribution mechanism in the past quarter-century. In a world that runs on broadband, all Americans deserve a pathway to get online, just as our nation provides assistance with housing, health care, energy and food.
The Universal Service Fund is in dire need of congressionally facilitated reform to catch up with the times. Without intervention, USF will never enable universal broadband and will eventually collapse under its own weight.
Leaving consumers to shoulder the never-ending burden of obsolete funding for USF is not a sustainable solution. Americans need Congress to step up and make Big Tech, which handsomely profits from widespread broadband access, chip in to support it. It’s a win-win.
Congress is the next stop on this fix-it train.
Kim Keenan is co-chair of the Washington, D.C.-based Internet Innovation Alliance (IIA).