- The Universal Service Fund (USF) is still alive, but telecom groups say much of it is broken
- Reform suggestions include increasing the Lifeline subsidy and setting higher speed standards
- The biggest issue still is figuring out how to pay for USF
The legal battle surrounding the Universal Service Fund (USF) has come and gone, but the program’s path to reform remains stuck in limbo — even though most of the telecom industry agrees that the USF as is can’t keep going for long.
Shortly before the Supreme Court in June ruled the USF’s current funding mechanism is constitutional, a group of U.S. senators revived the USF Working Group and requested the public to chime in on potential reforms.
One glaring problem with USF, according to the National Lifeline Association (NaLa), is that its Lifeline program, which provides a monthly discount on phone or internet service for low-income consumers, isn’t effective in providing affordable broadband connectivity.
Lifeline is one of four USF programs, along with programs focused on rural broadband expansion (High-Cost Fund), internet access for schools and libraries (E-Rate) and telehealth (Rural Health Care Program).
NaLa argued that increasing the Lifeline subsidy from $9.25 per month to no less than $30/month is necessary to meet the needs of low-income consumers. The $30 subsidy would be the same as that of the defunct Affordable Connectivity Program (ACP), which ended in May 2024 after running out of funds.
NaLa thinks raising the subsidy could also bolster Lifeline’s 22% participation rate.
“By contrast, at its peak of serving 23 million low-income households out of 53 million eligible, the ACP had a 44 percent participation rate,” NaLa wrote. “ACP’s fixed and mobile service provider participation was also much higher than Lifeline’s, and ACP enrollments were split essentially evenly between Democratic and Republican congressional districts.”
As for the USF’s impact on community anchor institutions (CAIs), the Schools, Health & Libraries Broadband (SHLB) Coalition noted that while the E-Rate program has been “enormously successful” in connecting over 100,000 schools across the country, there’s still room for improvement in setting speed standards.
For instance, SHLB suggested the Federal Communications Commission (FCC) should set a “multi-gigabit connectivity goal” for all CAIs to help them better integrate high-bandwidth technologies like AI.
“The Commission proposes to continue using a previously established short-term speed benchmark goal of 1 Gbps per 1,000 students and staff while foregoing to establish a new long-term goal,” said SHLB. “However, the Commission found that many school districts have already met this new short-term goal.”
But the FCC may not be so willing to raise the bar. Chairman Brendan Carr wants to axe the Biden-era FCC’s long-term speed goal of 1-gig downstream and 500 Mbps upstream, arguing it could “[skew] the market by unnecessarily potentially picking technological winners and losers.”
The USF funding question
As the USF contribution base continues to dwindle, there’s still the matter of where to find the money to keep the program afloat.
The current USF program, established by the Telecommunications Act of 1996, is funded by a percentage of telecom interstate and international service end-user revenues.
That contribution rate has increased over the years to a whopping 36%, and there isn’t much juice left to squeeze as more consumers now use broadband over traditional telephone services.
Industry groups have proposed a few ways to increase USF funding, such as using appropriations from Congress or requiring large cloud providers like Amazon and Meta to foot part of the bill.
In the think tank ITIF’s view, congressional appropriations are ideal because they expand the USF’s contribution base to all U.S. taxpayers.
“Ultimately, if Congress does not think that the societal benefits of USF are worth taxpayers in general paying for them, it should alter its distribution plan until they are worth it,” said ITIF.
SHLB, on the other hand, opposes leaving USF funding in Congress’s hands. The organization believes appropriations “fail to provide specific, predictable, and sufficient funding that is required to provide stability to the USF on an annual basis.”
Like NaLa, ITIF supports increasing the monthly Lifeline subsidy to $30, but it thinks that should happen only if the FCC eliminates the High-Cost fund, which covers buildout programs like the Rural Digital Opportunity Fund (RDOF) and the Connect America Fund.
ITIF argued that getting rid of the High-Cost Fund, which has the largest annual budget of the four USF programs at $4.5 billion, could potentially save the U.S. government about $20.9 billion over the next five years.
In any case, the future of USF reform will likely depend on how the Broadband Equity, Access and Deployment (BEAD) program will pan out, according to New Street Research Policy Analyst Blair Levin.
More than half of states and territories have now submitted their BEAD plans to NTIA, but it’s still unclear whether NTIA will require states to adjust their funding awards to favor more satellite and wireless providers.
“We don’t believe reform will occur until after it is clear how BEAD has affected connectivity to unserved and underserved locations, which in turn raise large questions about distribution reform,” Levin wrote in a note last week.