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The Universal Service Fund: now more universal taxation

By Scott Bradner

In theory at least some of what the U.S. Universal Service Fund (USF) is being used for is both a good thing to do and has some connection to the funding source. But like many things theory and practice can be rather far apart. Making the situation worse the FCC has just noticed that the rate that money is going into the USF is falling behind the rate that the money is being spent and has decided to implement a temporary way to throw more of our money into the pot.

The USF was established with an abundance of good intentions to "promote the availability of quality services at just, reasonable, and affordable rates; increase access to advanced telecommunications services throughout the Nation; advance the availability of such services to all consumers, including those in low income, rural, insular, and high cost areas at rates that are reasonably comparable to those charged in urban areas." (See http://www.fcc.gov/wcb/universal_service/welcome.html) The money came from a tax on long distance and international phone calls. It makes some sense to tax some types of phone calls to ensure that the people all over the US can get phone service.

But the use of the USF was expanded in the late 1990s to also subsidize Internet service to schools, libraries and rural heath centers (See "Flavors of universal access" - bradner-1997-06-16.) -- clearly these are worthy causes but its hard to see the justice in taxing phone calls to subsidize Internet service. Sort of like taxing newspapers in order to subsidize go carts. The USF is just a convenient pile of money.

A few months ago the FCC decided to deregulate DSL services. One impact of that decision was that DSL lines were no longer taxed for the USF. The FCC is now scrambling to replace that money at a time when the USF continues to spend more money - about $6.5 B in 2005, up from $4.4 B in 2000. They have now decided, as an interim solution, to extract more money from cell phone users and to start taxing many VoIP users. (See the new FCC rule http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-06-94A1.pdf) This new rule needs to be an interim solution because its hard to extract money from long distance users fast enough to keep the USF filled.

One side impact of the new rule is that all "interconnected VoIP providers" (those where one can call to and from the PSTN - see pp 36 of the FCC rule) must register with FCC and hire some company in Washington DC to deal with FCC paperwork. This requirement applies even to those VoIP providers whose revenue is below the threshold where they would be required to send money to the USF. This is the first time that I know of where everyone providing some type of Internet based service in the US is required to register with the government -- not a good precedent.

Its hard to tell how much money would be needed USF if its purpose was to get phone service to rural Alaska -- which is the excuse for continuing the USF given by 2 of the FCC Commissioners -- and other under served locations. But we are not likely to find out - politicians and the FCC will continue to use this tax (now over 10%) for things unrelated to phone service - good things (maybe) but not things to tax phone bills for.

disclaimer: Good things (maybe) is a common refrain about Harvard's activities but the university has not expressed an opinion on the USF, I just have.