March 12, 2021 – As expected, the universal service fund (USF) contribution factor will hit a new all time high next quarter. Today, the Federal Communications Commission’s Office of Managing Director announced that the proposed contribution factor for the second quarter of 2021 will be 33.4 percent.[1]

Like meme stonks, USF contribution factor only goes up! The new 33.4% factor shatters the previous USF contribution factor record of 31.8 percent set last quarter (1Q 2021).

Every telecommunications carrier that provides interstate (and international) telecommunications services (and VoIP) must contribute to the USF.[2] The amount of money that each carrier remits to the USF is based on their end-user revenues from telecommunications services calculated by the quarterly contribution factor. Carriers add a universal service fee to their subscribers’ monthly landline and cell phone bills to recover this cost, meaning consumers are the ones that ultimately bear the brunt of these user fees.

This system has been in place since 1997. The current rules were 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 few years, the universal service contribution factor has climbed to record highs. Let’s take a look:

The Cause? A Dwindling Revenue Base

For the second quarter of 2021, the Universal Service Administrative Company (USAC) projects $9.905670 billion in total interstate and international end-user telecommunications revenues will be collected. This is what’s causing the contribution factor to reach record highs – a dwindling revenue base. As you can see, the USF contribution base for the past five quarters tells the story:

First Quarter 2021:  $10,068,712,553

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 

For the second quarter of 2021USAC estimates that $2.461070 billion is needed to cover the total demand and expenses for all Federal universal service support mechanisms. This includes projected program support, administrative expenses, and true-ups and adjustments, and breaks out as follows:

E-Rate Schools & Libraries:  $634.61 million

Rural Health Care:  $149.36 million

High-Cost:  $1.41352 billion

Lifeline:  $254.82 million

Connected Care:  $8.76 million

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] Proposed Second Quarter 2021 Universal Service Contribution Factor, CC Docket No. 96-45, Public Notice, DA 21-308 (Mar. 12, 2021), https://docs.fcc.gov/public/attachments/DA-21-308A1.pdf.

[2] 47 U.S.C. § 254(d).  The first sentence of 254(d) is known as the mandatory contribution obligation. Section 254(d) also gives the FCC discretion to exempt contributors whose contributions would be de minimis, and grants the FCC permissive authority to require “[a]ny other provider of interstate telecommunications…to contribute to the preservation and advancement of universal service if the public interest so requires.” Id.