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.

Broadband Breakfast accepts commentary from informed observers of the broadband scene. Please send pieces to commentary@breakfast.media. The views expressed in Expert Opinion pieces do not necessarily reflect the views of Broadband Breakfast and Breakfast Media LLC.

WASHINGTON, May 8, 2023 – The Sixth Circuit Court of Appeals ruled Thursday that the Federal Communications Commission was prescribed sufficient guidance by Congress to collect money from communications companies for the Universal Service Fund and is within its authority to subdelegate some of that authority to a private entity, citing similar reasons as the Fifth Circuit in March.

Non-profit research house Consumers’ Research and communications service provider Cause Based Commerce last year asked the U.S. Court of Appeals for the Fifth Circuit – and the Sixth and 11th circuits – to find that Congress under Section 254 of the Telecommunications Act of 1996 gave the FCC unfettered delegatory authority to raise revenues akin to taxation for the fund that provides basic telecommunications services and that the commission has illegally delegated that authority to a private entity known as the Universal Service Administration Company.

The Fifth Circuit denied the petition on the grounds that Congress gave sufficient guidance to the agency to determine what to do with the $9-billion fund, put in sufficient guardrails for its administration, and that the FCC has enough oversight over USAC to subordinate some authority to the private body.

In a decision on Thursday, the Sixth Circuit came to the same conclusion using much of the same reasons as the Fifth Circuit.

“So long as Congress ‘shall lay down by legislative act an intelligible principle to which the person or body authorized to [exercise the delegated authority] is directed to conform, such legislative action is not a forbidden delegation of legislative power,” the Sixth Court said.

Those principles, as laid out in Section 254, include Congress’s explicit order to the FCC to ensure telecom services are of decent quality, reasonably priced, available equally in rural and urban areas, and funded in a nondiscriminatory manner.

“Together, these principles provide comprehensive and substantial guidance and limitations on how to implement Congress’s universal-service policy, and in turn, how the FCC funds the USF,” the Sixth Circuit said in its decision.

“Congress’s decision to grant an agency the ability to address new concerns while still constricting the agency’s discretion to do so within the statute’s purpose and principles does not turn a statute with an intelligible principle into an unconstitutional delegation,” the decision added.

The decision also noted that Congress limited the FCC’s authority by explicitly stating that federal funds should go to certain communications carriers and bound them to certain uses of the money. It also noted a “soft cap” in the language of the size and budget of the program.

The Sixth Circuit also agreed with the Fifth Circuit that there is no violation of the private-nondelegation doctrine by virtue of the fact that the FCC delegates the authority to USAC to set the amount to be collected from the communications companies for the fund because USAC is subordinated to the regulator.

“In its subordinate role, USAC provides the FCC with fact-gathering, ministerial, and administrative support,” the Sixth Circuit decision said. “It submits for approval to the FCC the underlying data and projections that the FCC then uses to calculate the contribution factor.”

“Critically, the FCC is not bound by USAC’s projections,” the decision added, noting the FCC may approve or deny the contribution recommended by USAC.

In a joint statement, trade groups Competitive Carriers Association, NTCA Rural Broadband Association, and USTelecom said, “Today’s decision is a win for the millions of rural and urban consumers as well as anchor institutions that rely on the services supported by the federal Universal Service Fund.

“As the court decision today confirms, Congress’ direction to the FCC—more than 25 years ago—to collect contributions in support of the universal service program is constitutional,” the statement added. “We believe that other courts considering similar challenges should come to the same conclusion.”

The USF is under financial pressure due to its reliance on voice service providers, a relic of its past. There is collective agreement that reform is needed, with recommendations for expanding the funding base including drawing on broadband service revenues, Big Tech contributions, and relying on general taxation.

In a report to Congress last year, the FCC said it would prefer to have congressional approval to expand the contribution base. As such, a bill introduced in both chambers in March would require the FCC to study and make rules on expanding the funding base.

WASHINGTON, March 29, 2023 – A bill introduced in both chambers Tuesday would require the Federal Communications Commission to study and make rules on expanding the funding base of the Universal Service Fund.

The Reforming Broadband Connectivity Act of 2023 – a previous version of which was introduced two years ago – would require the FCC within one year of the enactment of the bill to solidify rules to reform how the fund is supported and within 120 days to conduct a study on the need to broaden the fund’s base and submit the report to Congress.

The contents of the bill should include the “relative equities and burdens” of the changes on consumers, businesses and seniors, who often bear the brunt of the cost of support because the fund is currently supported by landlines.

The House version was introduced by Lizzie Fletcher, D-TX, Joe Neguse, D-CO, and Angie Craig, D-MN, and the Senate companion was introduced by Amy Klobuchar, D-MN, and John Thune, R-S.D.

“Ensuring broadband service in the most remote, hardest-to-serve areas requires a sustainable Universal Service Fund with a sustainable funding formula,” Brandon Heiner, senior vice president of government affairs at industry association USTelecom, said in a statement. “Senators Amy Klobuchar (D-Minn.) and John Thune (R-S.D.) recognize that the contribution mechanism must be reformed to preserve connectivity for rural Americans. Directing the FCC to initiate a rulemaking to expand the contributions base will help secure the future of universal service.”

The bill’s introduction follows an FCC report to Congress that requested the legislative body provide the commission with the authority to change the fund’s contribution base.

The USF, which includes four high-cost programs supporting basic telecommunications services for institutions and low-income Americans, receives roughly $9 billion a year from voice service providers, whose revenue base has been dwindling for years.

The reliance on those providers has called into question the fund’s sustainability. Various experts have proposed different remedies, including expanding the base to include contributions from broadband service providers, large technology platforms, and from the general taxation pool.

Prior to the FCC’s report to Congress, some experts argued that the commission can unilaterally expand the fund’s base. Those same experts warned that Congress may take too long to implement necessary legislation.

On Friday, an appeals court denied a petition that challenged the FCC’s authority to raise funds and subdelegate the work of coming up with the quarterly contribution amounts providers must pay into it. The petition must go through two more levels of appeal.