UPDATE: USF Contribution Factor Skyrockets To 31.8 Percent – New All Time High Set For First Quarter 2021

December 14, 2020 – The Federal Communications Commission’s Office of Managing Director has announced that the proposed universal service fund (USF) contribution factor for the first quarter of 2021 will be 31.8 percent.

September 14, 2020 – The Federal Communications Commission’s Office of Managing Director has announced that the proposed universal service fund (USF) contribution factor for the fourth quarter of 2020 will be 27.1 percent. This breaks the previous USF contribution factor record of 26.5 percent set during the third quarter of 2020. It also makes 2020’s average contribution factor 23.3 percent, the highest yearly average ever.

For the fourth quarter of 2020, the Universal Service Administrative Company (USAC) projects $10.42838 billion in total interstate and international end-user telecommunications revenues will be collected. USAC estimates that $2.204790 billion is needed to cover the total demand and expenses for all Federal universal service support mechanisms in the fourth quarter of 2020. If the FCC takes no action on the proposed USF contribution factor within 14 days, it will be declared approved. Historical information on quarterly universal service fund contribution factors is available online from the FCC.

Every telecommunications carrier that provides interstate (and international) telecommunications services must contribute a small slice of their revenues to fund the USF. The amount of money that each carrier gives to the USF is based on a calculation of their end-user revenues from telecommunications services and the quarterly contribution factor. Carriers recover this cost from their subscriber base by adding a universal service fee to each subscribers’ monthly landline phone and cell phone bills, meaning consumers are the ones that ultimately pay for it.

This system has been in place since 1997, adopted when wireline voice services (and long-distance) were a large source of revenue for telecommunications carriers. Over the past 20 years, however, the communications marketplace has evolved dramatically. Industry changes have made administration of the USF harder – it is more difficult to identify revenues that should be included in the USF contribution base; the overall contribution base continues to steadily decline, and over the past two years, the universal service contribution factor has climbed to record highs. Here’s a look at contribution factors for the last 7 years:

2020-Q1 – 20 | 2020-Q2 – 19.6 | 2020-Q3 – 26.5 | 2020-Q4 – 27.1 | 2020 Average: 23.3

2019-Q1 – 20 | 2019-Q2 – 18.8 | 2019-Q3 – 24.4 | 2019-Q4 – 25 | 2019 Average: 22.05

2018-Q1 – 19.5 | 2018-Q2 – 18.4 | 2018-Q3 – 17.9 | 2018-Q4 – 20.1 | 2018 Average: 18.975

2017-Q1 – 16.7 | 2017-Q2 – 17.4 | 2017-Q3 – 17.1 | 2017-Q4 – 18.8 | 2017 Average: 17.5

2016-Q1 – 18.2 | 2016-Q2 – 17.9 | 2016-Q3 – 17.9 | 2016-Q4 – 17.4 | 2016 Average: 17.85

2015-Q1 – 16.8 | 2015-Q2 – 17.4 | 2015-Q3 – 17.1 | 2015-Q4 – 16.7 | 2015 Average: 17

2014-Q1 – 16.4 | 2014-Q2 – 16.6 | 2014-Q3 – 15.7 | 2014-Q4 – 16.1 | 2014 Average: 16.2

2013-Q1 – 16.1 | 2013-Q2 – 15.5 | 2013-Q3 – 15.1 | 2013-Q4 – 15.6 | 2013 Average: 15.57

Reforming The USF Contribution System

When will the USF contribution factor stop increasing? There is only one correct answer to that question – when the system is fundamentally reformed. There’s widespread agreement that “the contribution mechanism is hopelessly outdated” and “contribution system is unsustainable.”[1] As AT&T’s July 21, 2002, policy blog post correctly explains, it no longer makes sense to have voice service revenues fund a program that facilitates the deployment of broadband services. We are not going to see consumers start subscribing to landline phones again.

But we have known this for a decade now, and groups have been using this argument to push for change without very little to no success. The very little success would be FCC forbearance and the FCC indicating it will assess one-way VoIP. Lately though, something feels different, and here’s why. The communications industry has had a more watchful eye on the USF contribution factor for a couple years now, and there have been informal stakeholder meetings about reform during that same time. Record setting contribution factors have instilled a sense of urgency. But, it’s going to be something else that kick this issue into high-gear – the pandemic. Broadband has allowed many Americans to quarantine at home while also continuing to work and go to school. A lot of people are betting that when the COVID threat is said and done, they will primarily work from home and only go into the office a few times a month. You need good, reliable broadband to work from home.

Now, let’s quickly look at two competing options for reforming the USF contribution system: (1) assess broadband revenues, and (2) Congressional appropriation. Under option one, the USF contribution base would be expanded to include broadband Internet access service, along with telecommunications services that contribute today. By assessing revenues from all communications services, the USF contribution factor will decrease, and the USF fee paid by consumers will decrease. Seems fair. This is what the Federal-State Joint Board on Universal Service recommended in October of last year.[2] Those arguing against this approach call it a tax and say it will lead to less broadband adoption. There probably would need to be a change to a connections-based regime too.

Option number two was recently proposed by AT&T in its July 2020 blog post – “It’s time for Congress to directly appropriate the funds to get the job done.” AT&T is calling for Congress to directly appropriate funds for the universal service fund every year as part of the federal budget. Sort of like how we fund the military I guess, since the AT&T blog post is short on details. This is something that others have alluded to in the past, and there are probably a number of ways it could work. For instance, the Federal government could say here you go FCC, there is a total of $10 billion for 2021, do what you want with it. The FCC would then fund the four USF programs based on each one’s needs and various other factors. Unfortunately, you can imagine how political this could get – withholding funding due to unrelated reasons, Congressional representatives demanding a certain amount of funding be used in their state or district, appropriating funding only for new network construction, other strings attached, total funding being insufficient, etc. There is a slew of other issues to be worked out under the Congressional appropriations proposal. But hey, this definitely adds to the discussion and helps keep the issue in the headlines.

Below is a summary of important filings, actions, and news from 2020 related to universal service and the USF contribution factor.

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USAC Files Fourth Quarter 2020 USF Contribution Base Data: $10.428 Billion

September 1, 2020 – The Universal Service Administrative Company (USAC) has filed information on the universal service fund (USF) contribution base to be used for the fourth quarter of calendar year 2020. This consists of the total interstate and international end-user revenue amount that will be used to determine the contribution factor for the universal service support mechanisms. USAC has calculated the total projected collected interstate and international end-user revenue base for the fourth quarter of 2020 to be $10,428,377,862. To provide a reference point, the USF contribution base for the four quarters of 2020 are as follows:

Fourth quarter 2020: $10,428,377,862

Third quarter 2020: $10,219,123,520

Second quarter 2020: $10,865,131,593

First quarter 2020: $11,129,976,956

USAC’s estimated revenue base for the fourth quarter of 2020 was derived from projected collected revenue reported by telecommunications service providers using FCC Form 499-Q in August 2020 – 4,200 reporting carriers, of which 3,051 are USF contributors and 1,149 are non-contributing de minimis carriers. Upon Federal Communications Commission approval of the total USF contribution base, the quarterly funding requirements for the four USF support mechanisms, and projected administrative costs, the FCC will establish a quarterly USF contribution factor. USAC will then bill USF contributors on a monthly basis for their individual obligations based on the approved contribution factor.

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FCC Asks For Comment On Whether One-Way VoIP Providers Should Contribute To The Universal Service Fund

June 11, 2020 – The FCC’s Wireline Competition Bureau has invited public comments to update the record in the FCC’s 2012 Contributions Reform Further Notice of Proposed Rulemaking as it pertains to “one-way” VoIP service providers. Specifically, comment is requested on whether the FCC should exercise its permissive authority under Section 254(d) of the Communications Act to include one-way VoIP revenues in the Universal Service Fund contributions base. The Bureau also has specifically requested comment on whether one-way VoIP services should be required to pay other fees applicable to interconnected VoIP services, such as regulatory fees. Comments are due on or before July 13, 2020, and reply comments are due July 27, 2020. Comments should reference WC Docket No. 06-122 and GN Docket No. 09-51, and may be filed using the FCC’s Electronic Comment Filing System.

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magicJack Consent Decree: $5 Million Fine & 3-Year Compliance Plan

June 5, 2020 – The FCC’s Enforcement Bureau has entered into a Consent Decree with magicJack VocalTec Ltd., magicJack, LP, and YMax Communications Corp. (collectively, magicJack), resolving the Bureau’s investigation regarding magicJack’s failure to report its interstate revenues and contribute to the Universal Service Fund. magicJack sells devices that use Voice Over Internet Protocol (VoIP) and are marketed as a replacement for traditional telephone service. Under the terms of the Consent Decree, magicJack must develop and implement a compliance plan, for the next three years, designed to ensure compliance with the FCC’s USF contribution rules and regulatory reporting requirements. Also, magicJack must make a settlement payment to the United States Treasury in the amount of five million dollars.

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NTCA Paper Argues For Including Broadband In Services That Contribute To The Universal Service Fund, Shows Reforming USF Contribution System Won’t Harm Broadband Adoption

May 7, 2020 – NTCA-The Rural Broadband Association has released a paper supporting the assertion that broadening the base of contributions to the Universal Service Fund (USF) by including both voice and broadband connections would not undermine broadband adoption and retention. NTCA-The Rural Broadband Association represents nearly 850 independent, community-based telecommunications companies that provide telecommunications and broadband services in rural America.

Currently, wireline telecommunications service providers, wireless telecommunications service providers, and certain VoIP service providers contribute money to the USF based on end user revenue attributable to interstate (and international) telecommunications services. All four of the FCC’s USF programs have been amended to promote broadband, but the current contribution base for the USF does not include broadband services. The paper is based on two authors’ investigation of the economic effects of including broadband services in the USF contribution base on consumer broadband adoption rates. Their findings include results of a survey they conducted to measure the effects on consumer broadband adoption and retention caused by including broadband Internet access services in the contribution base.

The authors conclude that the estimated percentage reduction in demand for broadband services is approximately 0.08% for every 1% increase in total service fees. As explained by NTCA, this would mean, for example, that for every 1,000 consumers spending $80 per month on broadband, an $0.80 USF contribution surcharge might cause one consumer at most to reduce his or her broadband purchase in some way. The paper also notes that the 0.08% estimated reduction “is a conservative estimate based the number of total accessible connections, and does not take into account any other gains in broadband adoption that might be realized and sustained as a result of programs supported by the USF.”

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USAC Files USF Support Mechanisms Fund Size Projections For Third Quarter Of 2020

May 1, 2020 – The Universal Service Administrative Company has filed the Federal Universal Service Support Mechanisms Fund Size Projections for the Third Quarter of 2020. The filing shows the following total projected 3Q 2020 funding requirements for each support mechanism:

High Cost Support Mechanism - $1.205 billion

Low Income Support Mechanism - $206.66 million

Rural Health Care Support Mechanism - $150.96 million

Schools and Libraries Support Mechanism - $554.76 million

USAC projects $60.24 million in administrative costs for 3Q 2020, which breaks out to $35.75 million in direct costs for all four support mechanisms, and $24.49 million in joint and common costs which include costs associated with billing, collection, and disbursement of universal service funds. The FCC will use the of the quarterly funding requirements for the four USF Support Mechanisms, the projected administrative expenses, and the USF contribution base amount, to establish a quarterly USF contribution factor.

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USF Contribution Factor Set At 19.6 Percent For Second Quarter Of 2020

March 13, 2020 – The Federal Communications Commission’s Office of Managing Director has announced that the proposed universal service fund (USF) contribution factor for the Second quarter of 2020 will be 19.6 percent. This is a slight decrease from the 21.2 percent contribution factor that was used for the first quarter of 2020. For the second quarter of 2020, the Universal Service Administrative Company (USAC) projects $10.86513 billion in total interstate and international end-user telecommunications revenues will be collected. USAC estimates that $1.765460 billion is needed to cover the total demand and expenses for all Federal universal service support mechanisms in the Second quarter of 2020. If the FCC takes no action on the proposed USF contribution factor within 14 days, it will be declared approved. Historical information on quarterly universal service fund contribution factors is available online from the FCC.

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USAC Files Second Quarter 2020 USF Contribution Base Data: $10.865 Billion

March 2, 2020 – The Universal Service Administrative Company (USAC) has filed information on the universal service fund (USF) contribution base to be used for the second quarter of calendar year 2020. The total projected collected interstate and international end-user revenue base for the second quarter of 2020 is $10,865,131,593. This is roughly a $265 million decrease from the revenue base used for the first quarter of 2020, which was $11,129,976,956. USAC’s estimated revenue base was derived from projected collected revenue for April to June 2020 reported by telecommunications service providers using FCC Form 499-Q in February 2020 – 4,204 reporting carriers, of which 2,844 are USF contributors and 1,360 are non-contributing de minimis carriers. Upon Federal Communications Commission approval of the total USF contribution base, the quarterly funding requirements for the four USF support mechanisms, and projected administrative costs, the FCC will establish a quarterly USF contribution factor. USAC will then bill USF contributors on a monthly basis for their individual obligations based on the approved contribution factor.

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FCC Releases Report On Fixed Competitive ETC Legacy USF Support

January 21, 2020 – The FCC’s Wireline Competition Bureau has issued an updated report showing the legacy universal service support amounts associated with competitive eligible telecommunications carriers (ETCs) offering service to fixed locations. The report shows 78 fixed, competitive ETS are receiving $6.1 million in annual legacy support. Fixed competitive ETCs began receiving legacy support at a reduced level on June 1, 2019.

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USF Contribution Factor Set At 21.2 Percent For First Quarter Of 2020

December 12, 2019 – The Federal Communications Commission’s Office of Managing Director has announced that the proposed universal service fund (USF) contribution factor for the first quarter of 2020 will be 21.2 percent. This is a decrease from the 25 percent contribution factor that was used for the fourth quarter of 2019, which also was an all-time high. For the first quarter of 2020, the Universal Service Administrative Company (USAC) projects $11.129976956 billion in total interstate and international end-user telecommunications revenues will be collected. USAC estimates that $1.92554 billion is needed to cover the total demand and expenses for all Federal universal service support mechanisms in the first quarter of 2020. If the FCC takes no action on the proposed USF contribution factor within 14 days, it will be declared approved. Historical information on quarterly universal service fund contribution factors is available online from the FCC.

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USAC Files First Quarter 2020 USF Contribution Base Data: $11.129 Billion

December 2, 2019 – The Universal Service Administrative Company (USAC) has filed information on the universal service fund (USF) contribution base to be used for the first quarter of calendar year 2020. The total projected collected interstate and international end-user revenue base for the first quarter of 2020 is $11,129,976,956. USAC’s estimated revenue base was derived from projected collected revenue for January to March 2020 reported by telecommunications service providers using FCC Form 499-Q in November 2019 – 4,2060reporting carriers, of which 2,920 are USF contributors and 1,340 are non-contributing de minimis carriers. Upon Federal Communications Commission approval of the total USF contribution base, the quarterly funding requirements for the four USF support mechanisms, and projected administrative costs, the FCC will establish a quarterly USF contribution factor for 1Q2020. USAC will then bill USF contributors on a monthly basis for their individual obligations based on the approved contribution factor.

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USF Contribution Factor Reaches 25 Percent For Fourth Quarter Of 2019

September 12, 2019 – The Federal Communications Commission’s Office of Managing Director (OMD) has announced that the proposed universal service fund (USF) contribution factor for the fourth quarter of 2019 will be 25 percent, a new record high. The 25 percent contribution factor breaks the previous all-time high USF contribution factor of 24.4 percent, which was used for the third quarter of 2019. This gives 2019 the highest yearly average USF contribution factor ever – 22.05 percent. For the fourth quarter of 2019, the Universal Service Administrative Company (USAC) projects $11.017439561 billion in total interstate and international end-user telecommunications revenues will be collected. USAC estimates that $2.184230 billion will be needed to cover the total demand and expenses for all Federal universal service support mechanisms in the fourth quarter of 2019. If the FCC takes no action on the proposed USF contribution factor within 14 days, it will be declared approved. Historical information on quarterly universal service fund contribution factors is available online from the FCC.

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USAC Files Fourth Quarter 2019 Contribution Base Data: $11.017 Billion

September 1, 2019 – The Universal Service Administrative Company (USAC) has filed information on the universal service contribution base to be used for the fourth quarter of calendar year 2019. The total projected collected interstate and international end-user revenue base for 4Q2019 is $11,017,439,561, which was derived using projected collected revenue reported on the FCC Form 499-Q submissions. Upon FCC approval of universal service fund support mechanisms quarterly funding requirements, projected administrative costs,  and total contribution base, the FCC will establish a quarterly USF contribution factor. USAC will then bill USF contributors on a monthly basis for their individual obligations based on the approved contribution factor.

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USF Contribution Factor Hits 24.4 Percent For Third Quarter Of 2019

June 12, 2019 – The FCC’s Office of Managing Director (OMD) has announced that the proposed universal service fund (USF) contribution factor for the third quarter of 2019 will be 24.4 percent, a new record high. The proposed 24.4 percent contribution factor shatters the previous all-time high USF contribution factor of 20.1 percent, which was used for the fourth quarter of 2018. With one quarter left, 2019 is on pace to have the highest yearly average USF contribution factor ever.

For the third quarter of 2019, the Universal Service Administrative Company (USAC) projects $11.483306 billion in total interstate and international end-user telecommunications revenues will be collected. USAC estimates that $2.22869 billion will be needed to cover the total demand and expenses for all Federal universal service support mechanisms in the third quarter of 2019. If the FCC takes no action on the proposed USF contribution factor within 14 days, it will be declared approved. Historical information on quarterly universal service fund contribution factors is available online from the FCC.

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USF Contribution Factor for 2Q 2019 Will Be 18.8 Percent

March 13, 2019 – The FCC’s Office of Managing Director (OMD) has announced that the proposed universal service fund (USF) contribution factor for the second quarter of 2019 will be 18.8 percent. This is a slight decrease from the 20 percent contribution factor that was used for the first quarter of 2019. For the second quarter of 2019, the Universal Service Administrative Company (USAC) projects $12.266 billion in total interstate and international end-user telecommunications revenues will be collected. USAC estimates that $1.921370 billion will be needed to cover the total demand and expenses for all Federal universal service support mechanisms in the second quarter of 2019. If the FCC takes no action on the proposed USF contribution factor within 14 days, it will be declared approved. Historical information on quarterly universal service fund contribution factors is available online from the FCC.

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USF Contribution Factor For First Quarter Of 2019 Will Be 20 Percent

December 12, 2018 – The FCC’s Office of Managing Director (OMD) has announced that the proposed universal service fund (USF) contribution factor for the first quarter of 2019 will be 20 percent. This is nearly identical to the 20.1 percent contribution factor that was used for the fourth quarter of 2018. For the first quarter of 2019, the Universal Service Administrative Company (USAC) projects $12.289162 billion in total interstate and international end-user telecommunications revenues will be collected. USAC estimates that $2.024470 billion will be needed to cover the total demand and expenses for all Federal universal service support mechanisms in the first quarter of 2019. If the FCC takes no action on the proposed USF contribution factor within 14 days, it will be declared approved.

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USF Contribution Factor Will Be 20.1 Percent for Q4 2018

September 12, 2018 – The FCC’s Office of Managing Director (OMD) has announced that the proposed universal service fund (USF) contribution factor for the fourth quarter of 2018 will be 20.1 percent. This is a new record high for a USF contribution factor, breaking the previous record of 19.5 set in the first quarter of 2018. Here are all the contribution factors for 2018:

2018-Q1 – 19.5

2018-Q2 – 18.4

2018-Q3 – 17.9

2018-Q4 – 20.1

2018 Average: 18.975

The Universal Service Administrative Company (USAC) projects $12.40 billion in total interstate and international end-user telecommunications revenues will be collected from October through December 2018. USAC estimates that $2.05876 billion will be needed to cover the total demand and expenses for all Federal universal service support mechanisms in the fourth quarter of 2018. If the FCC takes no action on the proposed USF contribution factor within 14 days, it will be declared approved.

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USF Contribution Factor Dips to 17.9 Percent For Q3 2018

June 13, 2018 – The FCC’s Office of Managing Director (OMD) has announced that the proposed universal service fund (USF) contribution factor for the third quarter of 2018 will be 17.9 percent. This is a decrease from the 18.4  percent used for the second quarter of 2018. The Universal Service Administrative Company (USAC) projects $12.951 billion in total interstate and international end-user telecommunications revenues will be collected during the third quarter of 2018 (July through September). USAC estimates that $1.946 billion will be needed to cover the total demand and expenses for all Federal universal service support mechanisms in the third quarter of 2018. If the FCC takes no action on the proposed USF contribution factor within 14 days, it will be declared approved.

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USF Contribution Factor Will Be 18.4 Percent for Q2 2018

March 9, 2018 – The FCC’s Office of Managing Director (OMD) has announced that the proposed universal service fund (USF) contribution factor for the second quarter of 2018 will be 18.4 percent. This is a decrease from the record high 19.5 percent used for the first quarter of 2018. The Universal Service Administrative Company (USAC) projects $12.80 billion in total interstate and international end-user telecommunications revenues will be collected from April through June 2018. USAC estimates that $1.968 billion will be needed to cover the total demand and expenses for all Federal universal service support mechanisms in the second quarter of 2018. If the FCC takes no action on the proposed USF contribution factor within 14 days, it will be declared approved.

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USF Contribution Factor Set at 19.5 Percent For Q1 2018

December 14, 2017 – The FCC’s Office of Managing Director (OMD) has announced that the proposed universal service fund (USF) contribution factor for the first quarter of 2018 will be 19.5 percent. This is a new record high, breaking the previous all-time high of 18.8 percent set in the fourth quarter of 2017. OMD also announced that for the first quarter of 2018, the Universal Service Administrative Company (USAC) projects that it will collect $12.87 billion in total interstate and international end-user telecommunications revenues. USAC estimates that $2.081 billion will be needed to cover the total demand and expenses for all Federal universal service support mechanisms in the first quarter of 2018. If the FCC takes no action on the proposed USF contribution factor within 14 days, it will be declared approved. Historical information on quarterly universal service fund contribution factors is available online from the FCC.

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[1] We Need to Fundamentally Rethink How USF Programs are Funded, Joan Marsh, AT&T Public Policy Blog (July 21, 2020), https://www.attpublicpolicy.com/universal-service/we-need-to-fundamentally-rethink-how-usf-programs-are-funded/

[2] Federal State Joint Board on Universal Service, WC Docket No. 96-45; Universal Service Contribution Methodology, WC Docket No. 06-122; A National Broadband Plan For Our Future, GN Docket No. 09-51, Recommended Decision (Oct. 15, 2019) (Recommended Decision). The following three state regulatory Commissioners make up the state members of the Federal-State Joint Board: Honorable Chris Nelson (SD), Honorable Sally Talberg (MI), Honorable Stephen Bloom (OR). See Universal Service Federal-State Joint Board Listing at https://docs.fcc.gov/public/attachments/DOC-358250A1.pdf.