The Federal Communications Commission is racing to find a funding solution for its wilting Universal Service Fund before it’s too late. Rural broadband groups are sounding the alarm, urging the commission to begin assessing broadband providers to cover the cost.
The nearly $9 billion USF is in a “death spiral,” according to FCC Commissioner Brendan Carr, due to a funding method that is no longer producing needed revenue. FCC is taking public comment for a report to Congress on how to potentially reform the USF and restabilize its funding. The report is required by the 2021 infrastructure bill, which allocated $65 billion to broadband. But rural policymakers and the largest broadband providers are split over who should foot the bill.
USF subsidizes both the construction and service rates of broadband networks in rural areas and other communities with limited high-speed internet coverage. The program, which was initially established to subsidize and build out telephone service, is funded with an assessment on interstate long-distance phone carriers. Long-distance carriers are allowed to forward the assessment to their customers as a percentage of their bills.
But funding for the program has dried up in recent years as customers have begun to forsake traditional telephone services in favor of web-based options or give up their landlines altogether. Because of the smaller funding pool, USF-related charges on the remaining phone customers’ bills have ballooned as high as 31.8% in 2021 from 6% in 2001.
Advocates for rural service told Agri-Pulse the solution is for the FCC to assess broadband companies the same way it currently charges telephone providers. The companies could then pass through assessment costs to customers as a monthly fee, which advocates say would be nominal compared to the prices phone customers are currently seeing, due to the larger pool that would be created by beginning to assess broadband companies. But cable associations have signaled resistance to the idea, arguing that passing on a new fee will hurt consumers.
Meanwhile, large swathes of rural America count on USF’s services for broadband connection — a commodity that has become a necessity since the COVID-19 pandemic forced a large portion of the economy and necessary services like school and health care online.
Chris Nelson, the chairman of South Dakota’s Public Utilities Commission, told Agri-Pulse that the USF makes a “real difference” in rural South Dakota “as it relates to building out quality broadband to the folks in [rural] areas,” adding that “it just flat works and has been responsible for most of the rural buildout that we’ve seen in South Dakota.”
Nelson said the stakes are high for South Dakota’s farmers and ranchers to be online and be “a part of the 21st-century agriculture marketplace,” which could include buying hard-to-get parts or participating in video auctions.
“Being able to find those things and be[ing] able to purchase them and get them sent to your operation in a timely manner — that’s important,” Nelson said.
But paramount to USF’s success in the future is ensuring “the sustainability of the fund,” Nelson said.
The National Rural Electric Cooperative Association (NRECA), which says it represents "more than 900 consumer-owned, not-for-profit electric cooperatives, public power districts, and public utility districts," urged the FCC to begin assessing broadband services.
NRECA said in comments to the FCC that USF’s funding base "should be broadened to include revenues from broadband services," to "ensure the long-term viability of this critical USF funding."
Nelson agrees, saying the FCC would be wise to begin “assessing broadband revenues or broadband connections in some way, expand the base of the fund or the base of the inputs to the fund to include broadband service,” in addition to the interstate telecommunications already assessed.
“When we look at where the dollars are being spent from that fund, the dollars are largely going to broadband, either broadband buildout or broadband service,” Nelson said. “Yet broadband is not paying into the fund at all.”
However, broadband companies have signaled resistance to funneling funds into the USF, especially when it comes to adding an assessment to customers’ bills.
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NCTA - The Internet and Television Association, which represents many of the largest telecom providers such as Charter and Comcast, argues against assessing broadband providers for the USF, suggesting such a measure would require congressional approval.
In comments to the FCC, the group said it "appreciates the need to stabilize the USF contribution system, but believes it is more important for Congress to act first by passing targeted legislation to address this issue. It is appropriate for the commission to defer to Congress given the massive amounts of federal funding that will be targeted on broadband deployment and adoption for the next few years.”
The group said any assessments on broadband providers could backfire, raising costs on the consumer and discouraging adoption of broadband.
“Any proposal to include [broadband internet access services] revenues in the contribution base would almost certainly result in new passed-through fees not previously assessed on these services, as well as some reduction in the fees passed through for telecommunications services,” the group said.
NCTA contended additional costs would not be offset by a decrease in fee percentages for phone service, challenging a notion argued by proponents to assess broadband providers.
“While some advocates may attempt to create the impression that these changes will cancel each other out and consumers will be unaffected, there is no basis for such an assumption,” NCTA said. “In particular, the impact on residential customers very much depends on which broadband services are subject to the contribution requirement.”
“We need to get over the rhetoric of taxing the internet … we think that the base itself needs to be expanded,” Bloomfield said in an interview with Agri-Pulse. “We’ve done research that shows it’s a very nominal fee. People aren’t going to not take broadband because of a nominal fee that helps other Americans get connected.”
Congress, in addition to spending in the Infrastructure Investment and Jobs Act, has made efforts to reform the USF.
Sens. John Thune, R-S.D., and Amy Klobuchar, D-Minn., in November introduced the Reforming Broadband Connectivity Act of 2021, which would require the FCC to reform the funding base of the USF. The bill has not moved forward.
Inside the FCC, some commissioners have proposed assessing companies that profit from increased broadband service.
Carr, a Republican commissioner, has proposed a measure that would “require Big Tech to start paying a fair share into USF,” by taking from the revenues made over airwaves funded by USF. In an op-ed published in Newsweek, he said his proposal would require congressional approval.
“Large technology companies are reaping trillions of dollars of revenues off of the networks that are supported and in many cases only exist because of USF expenditures,” Carr wrote. “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% of all traffic on rural broadband networks. The same study shows that 77-94% of total network costs are related to adding capacity or otherwise supporting the delivery of those streaming services.”
“Likewise, the largest digital advertising behemoths — Facebook and Google — churn out over $100 billion a year in revenues by delivering ads over networks supported by USF and yet contribute nothing based on those revenues. It is time to end this free ride,” he added.
The commission’s chair, Democrat Jessica Rosenworcel, told Communications Daily last year that Carr’s plan was “intriguing” and that the FCC “should be open to new ideas.”
However, rural advocates like Bloomfield argue that with massive money being allocated to broadband this year, the time to act is now.
“Universal service is going to be one of the places where FCC will have the authority,” Bloomfield said. “Things are moving too quickly on deployment for universal service reform to linger.”
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