Jeffrey Westling: A Floppy-Disk Fund for a Broadband World
The USF faces mounting financial and legal challenges, prompting calls for Congress to overhaul its outdated funding model
Last year, Americans learned that parts of the nation’s air traffic control system still relied on floppy disks and paper strips. Washington had spent decades patching a system that needed replacing. The Universal Service Fund (USF) deserves the same overdue upgrade.
The fund helps Americans afford phone and internet service, but its shrinking funding base keeps driving up charges on phone customers. Now that another federal appeals court ruling has called the fund’s legal foundation into question, perhaps it’s time that Congress stop patching the program and replace it with support suited to how Americans connect today.
Congress established the fund’s modern framework in 1996, building on existing programs that helped rural and low-income Americans obtain telephone service. The law also supported connections for schools, libraries, and rural health-care providers. Over time, the Federal Communications Commission (FCC) expanded broadband support, notably through the Connect America Fund, which subsidizes networks in areas without adequate coverage.
But the USF’s funding mechanism never caught up. The fund collects assessments on phone-service revenue, including wireless and internet-based calling, and providers generally pass those costs to customers. But as Americans shift toward services outside that funding base, the assessment rises.
Today, the assessment—originally 3% per customer—stands at 42% of eligible interstate and international phone-service revenue. As that revenue base contracts, the remaining customers face growing pressure to keep the program afloat.
Before moving to collect more money, the FCC should exhaust its options to reduce unnecessary spending. Some subsidies still reward providers for maintaining outdated networks. The Connect America Fund’s intercarrier compensation program, for example, helps rural phone companies replace revenue lost during changes to how carriers pay one another to complete calls. That transitional assistance now risks prolonging dependence on old copper networks.
The broader justification for network subsidies has also weakened. Many communities already have multiple broadband options, while Congress has committed $42.5 billion through the Broadband Equity, Access and Deployment (BEAD) program to reach unserved areas. Policymakers should account for those investments before asking consumers to finance overlapping support.
But spending cuts alone won’t repair the funding mechanism. A congressional working group has explored changes, and reports suggest lawmakers may extend assessments to broadband service. That would spread costs across more subscribers and ease pressure on phone customers. It would also make internet access more expensive.
Such a charge would ignore customers’ ability to pay. Households earning $20,000 and $2 million would face the same surcharge for the same service, consuming a larger share of the poorer family’s income. A program designed to expand internet access shouldn’t make service harder to afford.
The ongoing legal uncertainty around the fund adds urgency for Congress to take action. In 2024, the full 5th U.S. Circuit Court of Appeals ruled 9-7 that the funding structure unconstitutionally combined Congress’ delegation of authority to the FCC with the agency’s reliance on a private administrator. The Supreme Court reversed that decision in 2025.
But on Oct. 15, a unanimous 5th Circuit panel found a separate statutory problem: The FCC lacked specific congressional authorization to create the Universal Service Administrative Co., which administers the fund. The court concluded that the agency violated a 1945 law governing government corporations and vacated the administrative company’s fourth-quarter 2025 funding calculation.
To be clear, that decision doesn’t abolish the fund, but yet another Supreme Court rescue wouldn’t resolve its financial weaknesses or give recipients lasting certainty.
One approach Congress could consider is winding down the high-cost program, which subsidizes providers serving areas that cost more to reach. Wireless home internet and low-Earth-orbit satellites offer alternatives to traditional wired service. Indeed, some households now rely entirely on mobile connections. These options won’t meet every customer’s needs equally well, but they weaken the case for indefinitely subsidizing particular networks.
Congress could also convert Lifeline, which serves low-income consumers, as well as E-Rate for schools and libraries, and the Rural Health Care program into vouchers tailored to each group. Recipients could choose eligible services that best meet their needs, whether wired, wireless, or satellite.
That flexibility could help families afford connections and let schools, libraries, and clinics select appropriate capacity and reliability. Providers would compete for recipients’ business, while a larger pool of paying customers could encourage investment.
Another option would be to fund those vouchers through direct appropriations—spending Congress approves through the federal budget. That approach would spread costs across the broader tax base and give lawmakers clearer responsibility for spending and oversight. Savings from eliminating unnecessary network subsidies could finance more generous benefits than Lifeline currently provides.
In order to effect these sorts of changes, Congress would need to lay out a predictable transition that addresses existing commitments and protects recipients from abrupt disruptions. But preserving an outdated structure offers no lasting security.
Washington can keep patching the Universal Service Fund, or it can replace it with directly funded assistance that puts recipients first. Americans shouldn’t have to finance the equivalent of a floppy-disk program in order to afford an internet connection.
Jeffrey Westling serves as a senior scholar of innovation policy at the International Center for Law & Economics. His work focuses on telecommunications policy, particularly reducing barriers to broadband deployment and improving spectrum-management processes. Before joining ICLE, Westling was director of technology and innovation policy at the American Action Forum. Earlier, he worked at the R Street Institute as a technology and innovation policy fellow and associate. This Expert Opinion is Exclusive to Broadband Breakfast.
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