The Universal Service Fund (USF) is a system of telecommunications subsidies and fees managed by the United States Federal Communications Commission (FCC) to promote universal access to telecommunications services in the United States. The FCC established the fund in 1997 in compliance with the Telecommunications Act of 1996. Originally designed to subsidize telephone service, since 2011 the fund has expanded its goals to supporting broadband universal service. The Universal Service Fund's budget ranges from $5–8 billion per year depending on the needs of the telecommunications providers. These needs include the cost to maintain the hardware needed for their services and the services themselves. In 2022 disbursements totaled $7.4 billion, split across the USF's four main programs: $2.1 billion for the E-rate program, $4.2 billion for the high-cost program, $0.6 billion for the Lifeline program, and $0.5 billion for the rural health care program. Unlike many government programs which are funded by general Congressional appropriations, the Universal Service Fund is instead funded by a specific fee on United States telephone providers. While separate itemization is not required by the FCC, it is common for USF fees to be listed separately from other charges on a consumer's bill. As of 2024, the rate for the USF budget was 34.4% of a telecom company's interstate and international end-user revenues. The structure and funding of the USF has been subject to significant criticism and proposed reforms. One issue is a declining revenue base: consumers' spending on the interstate telephone service that funds the USF has been falling for many years. Some have challenged the constitutionality of having USF fees set without congressional approval and the delegation of authority to the private Universal Service Administrative Company (USAC), which is owned by the National Exchange Carrier Association.
Background
In the modern sense of offering service to all people, the promotion of universal service in telecommunications was crystalized in the 1960s. Some sources point to the earlier Communications Act of 1934 as promoting universal service based on the language of its preamble, but other historians have pointed out that in the early 20th century "universal service" was originally an AT&T marketing slogan about telephone interconnection, not evolving into a legal mandate to serve every American until much later.
Implicit subsidies for local service (1970-1982) In the 1960s the telecommunication monopolies were shocked by new evolving technologies and competitions: new long-distance carriers and microwave networks were authorized. Companies such as MCI Communications began to offer long-distance service in direction competition to AT&T. With falling costs on long-distance service, regulators decided to reallocate the increasing profit on long-distance telecommunication to fund subsidies to make local telephone connection more affordable. This process began in the mid 1960 and was institutionalized through the Ozark plan of 1970 into action. At the time of the institutionalization telephone penetration ranged between 85 and 95%. There has been some dispute about whether the charges paid from long distance service to local carriers were a subsidy or not. Legally, jurisdiction to regulate rates was split between the Federal Communications Commission (international and interstate) and state commissions (intrastate). During the 91st congress, Fred B. Rooney introduced H.R. 12150 creating a joint board between the Federal Communications Commission and the National Association of Regulatory Utility Commissioners to clearly delineate how telephone regulation was separated by jurisdiction. The joint board met on a voluntary basis and authored the Ozark plan. The situation was then formalized when the bill was reintroduced in the next congress as H.R. 7048 The Federal-State Commissions Joint Board Act and passed into law in 1971.
Breakup of the Bell system (1982-1996)
There was a push for deregulating the telecommunications industry in the 1980s. Under President Ronald Reagan, the FCC shifted its focus from "social equity to an economic efficiency objective," which it claimed was a primary purpose of the Communications Act of 1934. After AT&T was split up in 1984, universal service was still "supported by a system of above-cost access charges paid to local exchange companies." This system was administered by the National Exchange Carrier Association.
History
Telecommunications Act of 1996
The Universal Service Fund was first codified in the Telecommunications Act of 1996, the first major rewrite of the Communications Act of 1934. The act addresses new challenges and opportunities of the digital information age, with the goal of promoting an economic environment conducive for the growth of new information technology. It also further developed the meaning and implementation of universal service. The act calls for the creation of a joint federal-state board to make recommendations to the FCC on defining federal universal services and set time tables. The act also set out immediate priorities of universal service. These include quality and reasonably priced services, access to advanced telecommunication services, access for rural, low-income and high-cost regions, equitable and nondiscriminatory service, specific and predictable price structure, access of advanced telecommunication services for schools and health care and libraries (Sec. 254(b)(1)-(7)). The act provided ability in the constantly changing telecommunication environment to periodically revisit and adjust universal service, while setting core principles (Sec. 254(c)). The 1996 act also "mandated the creation of the universal service fund (USF) into which all telecommunications providers are required to contribute a percentage of their interstate and international end-user telecommunications revenues". Increased competition and universal service were legislatively addressed and codified with the Telecommunications Act of 1996. The major goals of Universal Service as mandated by the 1996 Act are as follows:
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