Last week the deadline hit for stakeholders to comment on the future of the Universal Service Fund (USF), which funnels money into Federal Communications Commission (FCC) initiatives that support low-income broadband adoption and high-cost rural deployments.
Many organizations underscored the issue of redundant government expenditure in their submissions, with a notable focus on whether the Affordable Connectivity Program (ACP) should be integrated into the USF framework.
The USF includes four programs targeting different vulnerable portions of the broadband market: the Connect America Fund, Lifeline, Schools and Libraries (E-Rate) and Rural Health Care. Many organizations called for the FCC to consolidate ACP with the Lifeline program, the latter of which provides a $9.25 broadband subsidy for low-income households – less than a third of the $30 benefit households get through the ACP.
The Information Technology and Innovation Foundation (ITIF) argued the Lifeline program has become redundant because it provides a smaller benefit to fewer people, as it applies to consumers with an income at or below 135% of the federal poverty line (compared to 200% or below to qualify for the ACP). Because eligibility for Lifeline is one of the ways to qualify for ACP, “there is no one covered by Lifeline who could not get the ACP,” the foundation said.
National Lifeline Association told the USF Working Group this week that merging ACP and the Lifeline program would require reconciling policy differences, specifically carrying forward key program design elements from the ACP that ensure low-income households have “sustainably affordable access to essential communications services.”
If ACP and Lifeline remain separate programs, they should be reformed to be more “complementary and consistent,” the National Lifeline Association added.
The Council for Citizens Against Government Waste (CCAGW), also in favor of replacing the Lifeline program with ACP, told the USF Working Group that with hundreds of billions of dollars now available for broadband deployment across the country, it is “difficult to continue to justify keeping the USF program at its current level.”
The USF should eliminate duplicative programs while supporting those that are operating “effectively and efficiently” such as the ACP, said CCAGW. As of August 21, 2023, there were 20,351,962 enrolled households in the ACP program.
Importantly, CCAGW noted that the ACP program will run out of funding in 2024, and those who are currently being served could lose their ability to pay for broadband access.
AT&T's Joan Marsh, EVP of Federal Regulatory Relations, has said ACP’s survival will have implications for USF.
"If the ACP funding is not renewed by Congress, the FCC will face an impossible choice: either let the ACP program expire and watch many low-income families disconnect from the Internet; or try to provide funding for some continuation of the program from the already burdened Universal Service Fund," Marsh wrote in a blog last year.
Whether Congress will allocate more funding for the ACP broadband subsidy remains uncertain, although this week AT&T joined the growing cohort of industry stakeholders in imploring it to do so.
USF contribution model concerns
Currently, the USF is funded by telecom companies that must pay a contribution factor proportional to interstate end-user revenues. According to legal experts, traditional telecom revenues have declined with the movement toward broadband services, which as of now are not included in the USF contribution base.
The USF Working Group also asked stakeholders to weigh in on any reforms necessary to ensure that the contribution factor is sufficient to preserve universal service.
In response, some have advocated for assessing USF contributions on broadband service and edge providers. For example, US Telecom’s comment to the USF Working Group noted that the current contributions system still assesses only communications services that were in demand decades ago, not in 2023.
“We are in an existential race to a revenue base trending toward $0, a race set to autopilot that unfairly focuses on the declining obsolete service revenues from less than ten companies to cover the vast majority of the bill,” said US Telecom.
NTCA – The Rural Broadband Association pointed out that some major beneficiaries of the fund aren't even contributing to it. Instead, regular users of basic voice and data services are the ones paying more. This is causing the contribution factor to rise even as these older services decline.
“The contribution mechanism itself is not performing as effectively as it could in spreading the obligation in an equitable and nondiscriminatory matter…execution is lacking and the contribution mechanism needs updating,” NTCA said.
USF will go back to court
The entire discussion around USF reform could become insignificant if the outcome of a pending legal case against the FCC goes south.
In March, the FCC scored a key victory in the Fifth Circuit Court of Appeals, as a three-judge panel upheld the constitutionality of the USF and the agency’s decision to delegate administration of USF programs to a private third party – the Universal Service Administrative Company (USAC). New Street Research’s Blair Levin, who had warned about the case’s potential impact on the USF, called the ruling “a pretty clear win for the FCC.”
However, the petitioners who lost in the Fifth and Sixth Circuit Court of Appeals this year successfully appealed to have the case reheard by the entire 5th Circuit Court in mid-September. Their argument is that the section of the Communications Act that establishes the USF contributions mechanism is an unconstitutional legislative power given to the FCC, as this “contribution” amounts to a tax that should be left up to Congress, not the FCC or USAC.
Levin in a June note said, "If the 5th Circuit rules in favor of the petitioners, it will set off a chain of events that could cause significant uncertainty and disruption in the ISP ecosystem.”
Meanwhile, the NTCA told the USF Working Group this week that “while court cases are pending that pose serious threats to the good and ongoing work toward fulfillment of the mandates of Congress for universal service, thoughtful consideration of how to promote and sustain universal service is more timely and needed than ever.”