Executive Summary
As telecommunications revenues decline, a tax to promote universal service – passed onto everyday consumers – continues to increase. The reason: That tax replenishes the Federal Communications Commission’s Universal Service Fund’s annual budget of $5 billion to $8 billion. The fund is the commission’s primary tool to close the so-called “digital divide” by supporting four programs that subsidize telephone and broadband services to rural communities, low-income citizens, hospitals, schools, and libraries.
These programs are a continuation of federal initiatives to ensure telecommunications services in rural and impoverished communities that began early in the 20th century and continue to serve millions of Americans today. The COVID-19 pandemic highlighted the critical need for universal access to broadband as more employees worked from home, students learned from home, and people saw their doctors via telehealth services.
But the Universal Service Fund’s future is in question. If the USF does not receive the same level of annual funding, its operational costs alone will bankrupt the fund. Without these programs, low-income and rural Americans could be left in a digital lurch. And without reform, consumers’ phone bills will rise as carriers are required to increase fees.
A new Lincoln Policy report, written by Joel Thayer and Alexiaa Jordan, examines two broad problems:
First, Congress and the Federal Communication Commission’s current policy for financing the USF faces significant structural challenges. The FCC is running out of money to keep the USF program afloat because telecommunication companies’ revenues are steadily declining, leaving a smaller pool of money to tax.
Second, the Federal Communications Commission’s universal service program is not operating efficiently. Nonpartisan government oversight of USF programs has found waste, fraud, and abuse that also depletes the fund.
The report presents policy options for Congress and the Federal Communications Commission to address these problems and ensure that the Universal Service Fund can close the digital divide in a cost-effective manner.
