USF Contributions Reform – News Update
FCC Commissioner Carr Supports Economic Study That Proposes Funding USF Through A Service Fee On Digital Advertising
September 15, 2021 – FCC Commissioner Brendan Carr has released a statement praising a new economic study that examines two proposals for changing the funding mechanism used for the universal service fund (USF). Currently, the USF is made up of revenue from traditional phone services, which have decreased dramatically over the last decade, causing the USF contribution factor, which is ultimately paid by consumers, to increase to record levels. In Subsidizing Universal Broadband Through a Digital Advertising Services Fee: An Alignment of Incentives, economists Hal J. Singer and Ted Tatos discuss funding the USF by: (1) levying a new service fee on digital advertising, or (2) shifting the funding base to landline Internet service providers (ISPs). They conclude that assessing a service fee on digital advertising constitutes the best policy option for reforming USF contributions. This position is based on the following economic criteria: (a) the size and expected growth of these funding bases; (b) the ability of each funding source to evade the imposition of any subsidy requirements by, inter alia, shifting revenue sources to avoid paying the fees; and (c) the extent to which the burden remains on the provider side and is not passed through to the user. The two economists estimate that “if the current USF funding levels were increased to $17.5 billion annually, by 2029 the contribution factor on digital advertising would only reach 7.3 percent, compared to a 14.6 percent contribution factor if the fees were levied on wireline ISPs.”
In May 2021, Commissioner Carr wrote an op-ed for Newsweek which calls for “Big Tech” to start contributing to the USF to help support broadband networks. He issued the following statement supporting the findings of Singer’s and Tatos’ paper:
“For too long, Big Tech has been enjoying a free ride on our Internet infrastructure. The current funding mechanism for the Universal Service Fund – a regressive charge placed on consumers’ monthly bills for traditional telephone service – is unfair and unsustainable. As this new economic study shows, requiring Big Tech to start paying a fair share could eliminate entirely this 30 percent charge from consumers’ bills. Rather than artificially raising the cost of Internet service for Americans, assessing Big Tech would sharply reduce consumers’ monthly costs. The study also shows that requiring large technology companies to pay a fee would align incentives given both the bandwidth consumed by digital advertising services and the benefits large technology companies would realize from even greater connectivity.”
USForward Report Recommends Way To Reform The Universal Service Fund – Adding Broadband Revenue Will Cause USF Contribution Factor To Fall Under 4%
September 14, 2021 – Broadband advocacy organizations NTCA–The Rural Broadband Association, INCOMPAS, and the Schools, Health & Libraries Broadband (SHLB) Coalition have sponsored the release of a report that recommends “a smart, sustainable approach” to reforming the universal service fund (USF) contribution system. The report – USForward – was written by Carol Mattey, a former long-time FCC official in the agency’s Wireline Competition Bureau.
Today, the USF is made up of revenue from interstate telecommunications services – wireline, mobile, and VoIP. The amount of money telecommunications carriers remit to the USF is based on a calculation of their end-user revenues from these services and the quarterly USF contribution factor. For the past 10 years, telecommunications revenue has consistently declined, causing the USF contribution factor to sharply increase to unprecedented levels. Many communications industry stakeholders believe the current USF system is beyond repair and fundamental reform is needed.
In light of this situation, the USForward report analyzes several options for reforming USF contributions: (1) modifying the current revenues-based contribution methodology to assess broadband internet access service revenues, (2) assessing connections, or (3) assessing telephone numbers. Ultimately, the report makes the case for adding broadband internet access service revenues to the USF in order to stabilize the program for the future. Notably, the report concludes that assessing broadband revenue will drop the USF contribution factor to under four percent:
“Reforming the current revenues-based system to include broadband internet access service revenues is the preferred approach, both as a matter of policy and ease of implementation. Doing so would reduce the contribution factor to less than 4%.”
Fourth Quarter 2021 USF Contribution Factor: 29.1 Percent
September 10, 2021 – 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 2021 will be 29.1 percent. This is a slight decrease from the 31.8 percent factor that was used in the third quarter of 2021.
For the fourth quarter of 2021, the Universal Service Administrative Company (USAC) projects $9.517295 billion in total interstate and international end-user telecommunications revenues will be collected. USAC estimates that $2.123870 billion is needed to cover the total demand and expenses for all Federal universal service support mechanisms in the fourth quarter of 2021. Total demand includes projected program support, administrative expenses, and true-ups and adjustments, and breaks out as follows:
E-Rate Schools & Libraries: $594.14 million
Rural Health Care: $153.12 million
High-Cost: $1.13713 billion
Lifeline: $230.93 million
Connected Care: $8.55 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.
USAC Files Fourth Quarter 2021 USF Contribution Base Data: $9.517 Billion
September 1, 2021 – The Universal Service Administrative Company (USAC) has filed projected universal service fund (USF) contribution base data which will be used to determine the USF contribution factor for the fourth quarter of calendar year 2021.
USAC has determined that the total projected interstate and international end-user telecommunications revenue base for the fourth quarter of 2021 is $9,517,295,012.
To provide a comparison, the total USF contribution base amounts for the past seven quarters were as follows:
Third Quarter 2021: $9,665,944,070
Second Quarter 2021: $9,905,669,690
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
USAC’s estimated revenue base for the fourth quarter of 2021 was derived from projected collected revenue for October to December 2021 reported by telecommunications service providers using FCC Form 499-Q submitted in August 2021 – 4,681 reporting providers, of which 3,194 are USF contributors and 1,487 are non-contributing de minimis service providers. As of August 19, 2021, USAC has yet to receive information from 155 non-de minimis telecommunications service providers that had previously submitted Form 499-Q revenue information to USAC.
After the Federal Communications Commission (FCC) approves the total USF contribution base, the quarterly funding requirements for USF support mechanisms, and projected USF administrative costs, the FCC will establish a USF contribution factor for the fourth quarter of 2021. The new contribution factor will be announced by a Public Notice. USAC will then bill USF contributors on a monthly basis for their individual obligations based on the approved contribution factor.
Big Tech Accountability For Broadband Act Introduced In House
August 3, 2021 – Representative Jack Bergman (R-MI) has introduced the Big Tech Accountability for Broadband Act, which would require Big Tech companies to contribute to the universal service fund (USF) to help “finance rural broadband programs.” Specifically, the bill would require the FCC to “promulgate regulations to require covered businesses to contribute to the Federal universal service support mechanism” within 180 days of enactment. A covered business is defined in the legislation as a business offering an online platform which has more than 30 million monthly users in the U.S. or more than 300 million monthly worldwide users, and that had more than $10 billion in global revenue during the most recent tax year. The term online platform is defined as a website, online or mobile application, mobile operating system, search engine, e-commerce site, or other online service. Additionally, the bill directs the FCC to consider creating a new rule prohibiting telecommunications carriers from recovering USF contributions from end users that are “considered by the [FCC] to be unserved or underserved with respect to broadband internet access service.”
USAC Files Fourth Quarter 2021 USF Size Projections
August 2, 2021 – The Universal Service Administrative Company (USAC) has filed the fund size and administrative cost projections for the federal universal service support mechanisms for the fourth quarter of calendar year 2021. USAC’s filing shows the following total projected 4Q 2021 funding requirements for each federal Universal Service Fund (USF) support mechanism:
High Cost Support Mechanism – $1.1377 billion (The 3Q 2021 funding requirement was $1.289 billion; The 2Q 2021 requirement was $1.413 billion)
Low Income Support Mechanism – $230.93 million (The 3Q 2021 funding requirement was $286.26 million; The 2Q 2021 requirement was $254.82 million)
Rural Health Care Support Mechanism – $153.12 million (The 3Q 2021 funding requirement was $149.39 million; The 2Q 2021 requirement was $149.36 million)
Connected Care Pilot Program – $8.55 million (The 3Q 2021 funding requirement was $8.59 million; The 2Q 2021 requirement was $8.76 million)
E-Rate Schools and Libraries Support Mechanism – $594.14 million (The 3Q 2021 funding requirement was $579.84 million; The 2Q 2021 requirement was $634.61 million)
USAC projects a consolidated budget of $61.14 million for 4Q 2021. This breaks out into $30.89 million in direct costs for all USF support mechanisms, and $30.25 million in total joint and common costs which include costs associated with billing, collection, and disbursement of universal service funds. (The consolidated budget for 3Q 2021 was $59.83 million, and it was $60.58 million for 2Q 2021.)
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. Then, USAC will bill USF contributors on a monthly basis for their individual obligations based on the USF contribution factor, collect these owed amounts, and distribute USF support to eligible recipients.
FAIR Contributions Act Would Require FCC To Examine Collecting USF Contributions From YouTube, Netflix, Google, And Other Edge Providers
July 21, 2021 – Senators Roger Wicker (R-MS), Shelley Moore Capito (R-WV), and Todd Young (R-IN) have introduced the Funding Affordable Internet with Reliable (FAIR) Contributions Act. If passed, the Federal Communications Commission (FCC) would be required to study the feasibility of collecting Universal Service Fund (USF) contributions from Internet edge providers such as YouTube, Netflix, and Google. As laid out in the Senators’ press release, the FAIR Contributions Act would direct the FCC to issue a Notice of Inquiry seeking public comment on the feasibility of collecting USF contributions from internet edge providers, and issue a final report on the matter within 180 days. Also, it would equire the FCC to consider the following as part of the inquiry:
Possible sources of Big Tech revenue, such as digital advertising and user fees;
The fairness of the current system and a system under which contributions could be assessed on Big Tech firms;
The feasibility of assessing contributions on such a broad category of firms that do not currently register with the FCC;
The effects such a change would have on Tribal, low-income, and elderly consumers; and
The changes to current law necessary to implement this system.
House Appropriations Committee Approves FCC Budget, Tells Agency To Modernize USF Contributions
July 1, 2021 – The U.S. House of Representatives’ Committee on Appropriations has approved the fiscal year 2022 Financial Services and General Government funding bill. Among other things, the legislation includes $388 million for the Federal Communications Commission (FCC), an increase of $14 million above the FY 2021 enacted level, to support efforts to expand broadband access, improve the security of U.S. telecommunications networks, and administer billions in COVID-19 relief programs. In the report explaining the bill, the Committee provides numerous recommendations to the FCC, including telling the FCC to modernize universal service fund (USF) contributions:
USF Contribution Reform – In recognition of the ongoing rapidly changing communications industry landscape, the Committee believes it is imperative that the FCC work with the Federal-State Joint Board on Universal Service on recommendations for USF modernization, including contribution reform to ensure the long-term sustainability and viability of the USF programs and resolve inequities in the current contributions structure.
Third Quarter 2021 USF Contribution Factor: 31.8 Percent
June 10, 2021 – The Federal Communications Commission’s Office of Managing Director has announced that the proposed universal service fund (USF) contribution factor for the third quarter of 2021 will be 31.8 percent. For the third quarter of 2021, the Universal Service Administrative Company (USAC) projects $9.665944 billion in total interstate and international end-user telecommunications revenues will be collected. USAC estimates that $2.313400 billion is needed to cover the total demand and expenses for all Federal universal service support mechanisms in the third quarter of 2021. This includes projected program support, administrative expenses, and true-ups and adjustments, and breaks out as follows:
E-Rate Schools & Libraries: $579.84 million
Rural Health Care: $149.39 million
High-Cost: $1.28932 billion
Lifeline: $286.26 million
Connected Care: $8.59 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.
USAC Files Third Quarter 2021 USF Contribution Base Data: $9.665 Billion
June 1, 2021 – The Universal Service Administrative Company (USAC) has filed data detailing the universal service fund (USF) contribution base to be used for the third quarter of calendar year 2021. The data shows the total collected interstate and international end-user revenue amount that will be used to determine the contribution factor for all universal service support mechanisms. USAC has determined that the total projected end-user revenue base for the third quarter of 2021 is $9,665,944,070.
To provide a comparison, the USF contribution base for the past six quarters are as follows:
Second Quarter 2021: $9,905,669,690
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
USAC’s estimated revenue base for the third quarter of 2021 was derived from projected collected revenue for July to September 2021 reported by telecommunications service providers using FCC Form 499-Q submitted in May 2021 – 4,654 reporting carriers, of which 3,189 are USF contributors and 1,465 are non-contributing de minimis carriers. As of May 19, 2021, USAC has yet to receive information from 261 non-de minimis telecommunications service providers that had previously submitted information to USAC. 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 USF contribution factor for the third quarter of 2021. USAC will then bill USF contributors on a monthly basis for their individual obligations based on the approved contribution factor.
FCC Commissioner Calls For Big Tech To Contribute To Broadband Universal Service Fund
May 24, 2021 – Federal Communications Commission (FCC) Commissioner Brendan Carr has written an op-ed in Newsweek which calls for “Big Tech” to start contributing to the Universal Service Fund (USF) to help support broadband networks. Commissioner Carr explains that the USF is made up of revenue from traditional phone services, which have decreased dramatically over the last few years, even though most communications services are now delivered using the Internet. He says it’s time Big Tech pays its fair share:
Big Tech has been enjoying a free ride on our internet infrastructure while skipping out on the billions of dollars in costs needed to maintain and build that network. Indeed, one study shows that the online streaming services provided by just five companies—Netflix, YouTube, Amazon Prime, Disney+ and Microsoft—account for a whopping 75 percent of all traffic on rural broadband networks. The same study shows that 77-94 percent of total network costs are related to adding capacity or otherwise supporting the delivery of those streaming services. Ordinary Americans, not Big Tech, have been footing the bill for those costs.
Notably, Commissioner Carr says funding the USF through direct Congressional appropriations has “its downsides” because the annual budget process “is far from predictable” and there is “growing concern about adding to the national debt.” He recommends two actions: (1) Congress should enact legislation that ensures Big Tech contributes an equitable amount; and (2) the FCC should open a proceeding to look at ending the tax on consumers’ monthly telephone bills and shifting a fair amount over to Big Tech.
