The Universal Service Fund is stuck in its own Groundhog Day

  • The Universal Service Fund is in a perpetual debate about how to improve funding and effectiveness

  • Senator Ted Cruz has proposed a significant shift in USF funding, advocating for Congress to have more control through the regular budget process

  • Cruz' approach may clash with other lawmakers' proposed alternative funding sources

It seems like the Universal Service Fund (USF) has been stuck in a loop for years, as debates over how it could be improved and better funded rage on. There are plenty of possible solutions on the table, yet the wheels just keep on spinning.

The USF is dedicated to broadband builds in rural and Tribal areas, a low-income affordability program and for connections in schools, hospitals and libraries. Even though the proposed budget for the USF was a hefty $6.03 billion in the fourth quarter of 2023, USTelecom and others fear that the revenue base is “trending toward $0.

The FCC delegates the administration of USF funds to a third party – the Universal Service Administrative Company (USAC) — which has lead to tensions over the program's policies and even its legality

Since its launch in 1997, the USF has been propped up by fees tacked onto phone bills but USTelecom, NTCA, WTA have advocated that the burden on phone companies should be lightened by taxing broadband and edge providers. A new tax model could also have implications for big tech companies like Alphabet, Meta, Amazon, Apple, Microsoft and Netflix.

One of the loudest in the argument has been Senator Ted Cruz, the top Republican on the Senate Commerce Committee. This month Cruz laid out his ideas to shake up how the USF gets its funding in an eight-page blueprint shared with POLITICO.

Instead of relying on fees from broadband providers or big tech, he wants Congress to have more say by bringing much of the money into the regular budget process. This way, he argued, lawmakers can keep a closer eye on where the money goes and what rules are set for broadband programs under the FCC. Cruz said he wants to develop legislation based on his blueprint.

The Wireless Internet Service Providers Association (WISPA) has backed Cruz’ proposal, telling Fierce Telecom this week that “it may be more equitable to fund the Commission’s USF programs through appropriations, so long as those appropriations are sustainable, do not suffer from funding lapses and give the FCC sufficient flexibility.”

However, Cruz’s stance may put him at odds with other lawmakers who are also looking for alternative funding options for the USF. Even some Republicans, such as FCC Commissioner Brendan Carr, have long advocated for tech giants to contribute to the USF, arguing that these companies benefit from internet infrastructure and should therefore share in its costs.

During the Incompas summit on Tuesday, Senator Ben Luján of New Mexico, who serves as a co-chair of a bipartisan working group focused on the USF, voiced doubts about Congress's ability to allocate broadband funds amid persistent uncertainty surrounding broader spending discussions. “If members of Congress are willing to do that on funding the government, what do you think they’ll do on [broadband] affordability programs?” Luján said.

Roger Entner of Recon Analytics noted that because the USF specifically funds broadband in rural America, it should be considered that "not every congressman is a rural congressman."

“If USF appropriations goes into Congress, rural representatives will be all up for it, and be generous, but urban representatives do not have the same incentive,” Entner told Fierce.

The forgotten USF bills

Over the past few years lawmakers have made several attempts to fix the USF, but nothing seems to stick. 

In May 2021, a group of senators introduced the Funding Affordable Internet with Reliable (FAIR) Contributions Act, which would direct the FCC to conduct a study into the feasibility of collecting USF contributions from edge providers. Their efforts failed. Maybe they thought second time would be the charm, because they reintroduced the bill again in March of last year.

Separately, in November Senators Mullin (R-OK), Kelly (D-AZ) and Crapo (R-ID) proposed the Lowering Broadband Costs for Consumers Act of 2023, which would see providers that account for more than 3% of total U.S. annual internet traffic and earn more than $5 billion in annual U.S. revenue contribute to the USF. But, alas, nothing has happened with the bill since its introduction.

New Street Research’s Blair Levin said it’s possible that the Congress in 2025 will reform the USF system, “but several FCC's and Congress' have kicked the can down the road so it is possible for it to happen again.”

Levin added that perhaps by 2027, there will likely be changes to both the sides of USF: contribution and distribution. "As to the specific nature of those changes," he said, it will largely depend on who is in charge of the FCC and Congress at the time.

ACP in the fold

Sneaking into these USF questions is the Affordable Connectivity Program (ACP), a separate initiative for low-income broadband assistance, which is slated to wrap up its full funding cycle in April. Some policymakers and industry groups, like USTelecom, have argued that Congress should fold the ACP subsidy into the USF.

Critics see overlap between the Lifeline program, which offers internet and phone subsidies to low-income households as part of the USF, and the ACP. They suggest that having both programs may duplicate efforts and resources.

Not surprisingly, the likelihood of this happening also seems low. There’s no viable legislation to bring the ACP into the USF yet, and with a presidential election looming, Entner noted, “these guys have bigger fish to fry right now.”

Learn more about what's happening with U.S. broadband regulation here.