Universal Service Fund (USF)

The Universal Service Fund (USF) is an assistance program run by the Federal Communications Commission (FCC). The FCC is responsible for regulating and maintaining communication across the United States. This includes breaking monopolies and ensuring that the national telecommunication industry is developed across the country.

The Universal Service Fund was initially created to help spread telephone networks across the United States. Congress expanded the program significantly with the Telecommunications Act of 1996. It created four financial assistance programs: the high cost support mechanism, the low income support mechanism, the rural health care support mechanism, and the schools and libraries support mechanism.

The high cost support mechanism subsidizes some of the cost of developing telecommunications infrastructure in cost-prohibitive areas. The low income support mechanism assists low income consumers with their telecommunications bills. The rural health care support system helps rural healthcare facilities develop robust telecommunications networks. The schools and libraries support mechanism helps subsidize the costs of developing new infrastructure for schools and libraries. Many schools and libraries are eligible for the program, but rural and low income facilities receive the most assistance.

Background

The United States has been regulating communication since the Radio Act of 1927, which helped establish the Federal Radio Commission. This commission helped manage which radio frequencies would be available for public use, and which frequencies would be reserved for government or commercial use. However, the Federal Radio Commission quickly became outdated. In 1934, Congress used the Communications Act to replace the Federal Radio Commission with the Federal Communications Commission (FCC).

Like the Federal Radio Commission, the FCC had jurisdiction over radio transmissions across the United States. However, it was also created to manage telephone communications and to break up monopolies created by telephone companies. Early in its history, the FCC broke up the National Broadcasting Company. In the 1980s, it also played an important role in the breakup of AT&T's telecommunications monopoly.

In the past, many telecommunications companies failed to provide service in rural America. They had argued that the costs associated with building infrastructure in rural areas were too high, and that the profits from providing service to areas with low population density were too small. The government had previously subsidized some of these costs, successfully encouraging companies to provide telephone service to rural regions. This was the first Universal Service Fund.

To create more competition among telecommunications companies, the FCC pushed Congress to pass the Telecommunications Act of 1996. The act forced major telecommunications carriers to allow new companies to lease the use of existing telecommunications infrastructure in order to sell communications services to customers. This allowed new companies to enter the telecommunications market without paying for the extensive costs associated with building infrastructure.

Overview

In the 1990s, as the rise of the Internet and World Wide Web transformed economies and societies all over the world, much of the rural US lacked access to high speed internet. As with telephone networks, expanding service into rural areas was prohibitively expensive and the potential customer bases in rural areas were too small to justify the inherent costs. The Telecommunications Act of 1996 contained several provisions designed to address this concern. The most sweeping change was a drastic expansion to the Universal Service Fund.

The expansions identified and defined four programs: high cost, low cost, rural health care, and schools and libraries. Each of these categories was eligible for funding subsidization from the FCC. Some politicians were unhappy with these changes, and challenged them in court. However, the new version of the Universal Service Fund endured.

The Universal Service Fund high cost support mechanism provides support directly to telephone companies. It identifies regions in which the cost of maintaining a telecommunications network is unusually or prohibitively high. It then directly subsidizes some of those costs, reducing the necessary investment for telecommunications companies. The telecommunications companies may pass these savings on to consumers with reduced pricing.

The low income support mechanism directly assists low income areas. It helps customers who might not be able to afford a phone bill by subsidizing some of their expenses, including monthly bills and connection charges. This gives telecommunication companies confidence that maintaining service in low income areas will remain profitable, ensuring that the network in those areas remains intact.

The rural health care support mechanism helps rural health care providers manage their telecommunications expenses. It keeps the telecommunications prices for rural healthcare networks similar to those of their urban counterparts. This allows rural health care facilities to operate telehealth services and other telecommunication services in a reliable manner.

The schools and libraries support mechanism helps provide telecommunications services to schools and libraries that might not otherwise be able to afford such utilities. This includes high speed internet connections, local telephone connections, long distance connections, and the equipment necessary for such connections to function. It also includes the connections and equipment necessary to create internal networks for school and library facilities.

Though not all schools are eligible to receive assistance, most schools that meet the Elementary and Secondary Education Act of 1965 may apply for participation. Libraries that receive assistance under the Library Service and Technology Act are usually eligible for assistance. The program does not provide direct financial assistance to schools and libraries. Instead, they receive significant discounts on the services directly provided by vendors. Discounts range from 20 percent to 90 percent of the market cost, and are determined per individual case according to a matrix designed by the FCC. Schools and libraries in rural and low income areas receive greater discounts than schools in wealthier or urban areas. Following the purchase, the Universal Service Fund compensates vendors for the discounted amount.

Bibliography

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“Is Universal Service Fund in Peril? A Close Look at the Budget – and Where the Money Comes From.” Telecompetitor, 2020, www.telecompetitor.com/is-universal-service-fund-in-peril-a-close-look-at-the-budget-and-where-the-money-comes-from/. Accessed 1 Apr. 2020.

“The History of the Federal Communications Commission (FCC).” Mitel, 2020, www.mitel.com/articles/history-federal-communications-commission-fcc. Accessed 1 Apr. 2020.

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“Universal Service Fund.” State of New Jersey, 2020, www.state.nj.us/bpu/residential/assistance/usf.html. Accessed 1 Apr. 2020.

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