Last week, the Senate Subcommittee on Communications, Media and Broadband held a hearing titled “The State of Universal Service.” The Universal Service Fund is our nation’s critical connectivity program that helps ensure that voice and broadband services are available and affordable throughout the country.

Since its creation by Congress in the 1996 Telecom Act, the USF has become a program that millions of families, community anchor institutions and small businesses rely on to get connected. It has been especially valuable for families and businesses that rely on it for work, school and telehealth at home.

The USF spends about $8.5 billion annually to help fund affordable connectivity in rural areas, low-income households, schools, libraries and rural hospitals. Today, the Federal Communications Commission is working to make high-speed broadband as ubiquitous as telephone service, and broadband is the essential communications technology the USF now supports.

While the USF remains vital in an ever-increasing connected world, it is in serious jeopardy of surviving. To fund the programs, telecom providers are required to pay a certain percentage of their interstate and international telecom revenues, known as the “contribution factor.” Typically, telecom providers collect these USF fees from their customers on their monthly bills.

However, the telecom revenues that fund the USF have declined over 60 percent in the last two decades. As a result, the contribution factor has skyrocketed from about 7 percent in 2001 to a historic high of about 30 percent today, as a higher portion of telecom revenues is needed to sustain the fund. That means certain consumers and businesses are now paying an additional 30 percent on top of their phone bills in order to fund the USF.

Telecom revenues continue to decline so rapidly because customers today rely more on broadband services and less on landline and mobile phone services, but broadband revenues do not pay into the USF. While the FCC has modernized each USF program to help support broadband service, it has not modernized its funding mechanism to require broadband services to pay into the Fund even though historically the agency has required supported services to be included in the contribution system.

Without intervention, the contribution factor is predicted to rise to 40 percent by 2025. This is unsustainable and puts the stability of the entire USF at risk. In fact, the contribution factor has become so high that it has led some groups to challenge the USF in federal court as unconstitutional, which also threatens the sustainability of the USF.

Reforming the USF funding mechanism is urgently needed and long overdue

Over 340 diverse stakeholders have come together as the USForward Coalition calling on the FCC to move forward with USF reform by expanding the contribution base to include broadband revenues. This solution is based on the recommendation in the USForward Report (that INCOMPAS helped commission), which was written by USF expert and former FCC official Carol Mattey.

The USForward Report explains that the most logical way to reform the contribution system and sustain the USF is to include broadband revenues in its funding assessment. Under this approach, the contribution factor is estimated to fall to less than 4 percent. It also means that the services that get USF support are paying into it, rather than solely relying on telecom customers, including those that have not made the switch to broadband, such as older Americans.

In fact, some members of Congress understand the urgency of reform and also want the FCC to act. The Reforming Broadband Connectivity Act, for example, is a bipartisan, bicameral bill that would require the FCC to reform the contribution system within one year.

Some question whether large tech companies should be assessed to contribute to the USF, and the short answer is “No.” Tech companies invest $120 billion each year in global internet infrastructure, and unlike broadband providers, these companies do not request or receive USF funding for these investments.

The FCC also lacks the authority to regulate tech companies and doing so would require Congress to act. This would further delay reform and expand the FCC’s regulatory authority over all online content and services — an overreach that many question as too broad since nearly every business today has an online presence and uses the internet to conduct business. Moreover, proposals to target certain tech companies risk skewing the online marketplace and competitive markets.

Some also question whether we still need the USF at all, and the short answer is “Yes.” While Congress allocated tens of billions for broadband, most of this investment is targeted for deployment, yet a significant portion of the USF programs focus on affordability. We not only have to make sure we build out our broadband networks, but also that communities can then afford to subscribe to these services.

The FCC should not wait to reform the USF. The USForward Report sets out a real plan that the FCC can and should implement. Congress should encourage the FCC to act now and save the nation’s critical connectivity program.

Angie Kronenberg is the president of INCOMPAS, where she manages the policy team and its work before federal, state and local governments, as well as leading the association’s efforts on membership and business development. This piece is exclusive to Broadband Breakfast.

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WASHINGTON, May 17, 2023 – Witnesses at a Senate Committee on Agriculture, Nutrition, and Forestry hearing urged Congress to increase broadband deployment speed requirements in the Farm Bill of 2023 Wednesday.  

Every five years, Congress passes legislation that covers agricultural and food programs in the Farm Bill, which includes rural broadband programs. The foremost of which is the US Department of Agriculture’s ReConnect Program which offers grants for broadband infrastructure deployment that connects rural addresses. 

Congress can help push rural networks forward by encouraging fiber builds, which can be accomplished by keeping minimum speeds at 100 Mbps download and 100 Mbps upload, said Roger Nishi, vice president of industry relations at Waitsfield and Champlain valley Telecom.   

High-speed internet is essential for precision agriculture techniques that connect farm equipment and buildings to reduce input costs and improve yields, added Jesse Shekleton, director of Broadband Operations at Jo-Carroll Energy.  

“Demands for bandwidth on farms will continue to grow,” he said, arguing that fiber should be prioritized in rural builds due to its future-proof capacity.  

The agriculture industry is trending toward a need for multi-gig service by 2030, he said. If we only build out the needs of today, we are not considering the needs of the future, he noted. 

Justin Forde, vice president of government relations at ISP Midco, disagreed, claiming that the USDA needs to be technology-neutral to ensure that all locations are serviced by the most reasonable technology with regards to terrain and weather complications that could bar fiber deployment.  

“It is simply irresponsible to try to drive fiber to all these rural locations,” claimed Forde. Customers do not need 100 Mbps symmetrical speed and it is unreasonable to deploy it, he continued.  

CEO of Farmers Telecommunications Cooperative, James Johnson, said in response that 20 percent of rural consumers use 1 gigabit speeds and that speed demands will only continue to grow. 

Inter-Agency Coordination 

Witnesses also urged Congress to encourage federal agency cooperation to avoid overbuilds and duplicative grant funding. 

The release of the updated memorandum of understanding in August of 2022, which outlined the coordination between the National Telecommunications and Information Administration and the Federal Communications Commission, is a good start, said Nishi.  

However, these agencies need continual oversight from Congress to ensure they are working together to connect all Americans to broadband, he said.  

In December, Sen. John Thune, R-S.D., introduced a bill that would merge the ReConnect program with the agency’s other broadband funding initiatives.  

The coalition, including Sens. Ben Ray Lujan D-N.M., Amy Klobuchar, D-Minn., and Deb Fischer, R-Neb., argued the Rural Internet Improvement Act would facilitate the efficient dispatch of funding to rural areas. The bill would also limit the disbursal of ReConnect funds to areas in which at least 90 percent of households lack broadband service. 

The bill has been introduced to the Senate Committee and is awaiting a vote. 

Hearings regarding the 2023 Farm Bill will continue through the first months of the year. The current legislation is set to expire on September 30. 

WASHINGTON, May 11, 2023 – Senate witnesses disagreed on whether all broadband internet revenue should be taxed as part of the Universal Service Fund contribution factor. 

“Historically, the USF has always been paid for based upon the services that is supports,” said Angie Kronenberg, president of trade association for competitive networks, INCOMPAS, urging lawmakers to include all broadband internet revenue in the contribution base for the USF.

Kronenberg was testifying in a Senate Subcommittee on Communications, Media and Broadband hearing Thursday.

The USF is a nearly $10 billion fund that relies on dwindling voice service revenues to fund several programs that support low-income broadband access in the United States.  

Adding broadband companies to the contribution base will build the fund to a more sustainable level and can be done without any change to the Federal Communication Commission’s statues, said Kronenberg. 

Professor at Boston College Law School Daniel Lyons disagreed, saying that adding broadband companies will not solve the structural problems with the USF.

“Whether you are talking about adding broadband providers or adding edge providers, once you start taxing those services, you create structural incentives that rearrange the way the internet works in ways that we can’t predict in advance,” he said. 

Instead, Lyons urged Congress to make the USF a program based on federal appropriations. Doing so would make the program subject to hard budget constraints and oversight from Congress, he said. 

Including Big Tech in the contribution base is a topic of much debate across the industry. The FCC has left it to Congress to institute legislative reforms that would allow it to make changes to the contribution base. 

The fund has been under scrutiny as the voice service revenues which is relies on are dwindling. The USF supports programs such as Lifeline, which supports affordable access to broadband internet for low-income households. 

Correction: A previous version of this story incorrectly stated that INCOMPAS President Angie Kronenberg urged that big tech companies be included in the USF contribution base. In fact, she said that broadband companies should be included in the contribution base. The story has been corrected.