Definition

Universal Service Fund (USF)

Contributor(s): Wesley Chai

The Universal Service Fund (USF) is a United States government program that supports telecommunications access and affordability in rural and low-income communities. The USF is managed by the Federal Communications Commission (FCC), an independent government agency. According to the concept of universal service, all Americans should have access to a baseline standard of telecommunications services -- such as wireless phone and internet access.

USF is made up of four smaller programs: Connect America Fund, Lifeline (low income support), E-rate (school and library support) and Rural Health Care. These programs, respectively, subsidize operation costs for telecommunications providers in rural and isolated areas, personal wireless phone and internet costs for low-income households, broadband services for libraries and schools, and telecommunications services for healthcare providers that serve rural communities.

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For telecommunications service providers, it costs similar amounts to operate in rural and urban communities. Rural communities, however, have fewer paying subscribers than urban communities, which drives up costs for consumers. USF subsidizes costs for telecommunications providers operating in rural and isolated communities, which allows them to offer end users access to wireless and internet services at affordable rates.                        

For qualifying rural healthcare providers, low-income households, schools and libraries, the cost subsidies for broadband and high-speed internet go to the end users, to be applied directly to the service bill.

Whom does the USF serve?

The idea of universal service is that all Americans should have access to a baseline standard of communications services. The direct beneficiaries of the USF are rural communities, low-income communities, geographically isolated communities and tribal lands.

Without subsidies from the Universal Service Fund, basic wireless service, internet connectivity and high-speed connectivity would be considerably more expensive for these communities, and less accessible. This would have several negative effects on these communities: Quality of life, education and healthcare would suffer as a result.

How is USF funded?

The USF is funded by monetary contributions, which the FCC requires from all telecommunications service providers. Companies required to contribute include service providers such as wireless phones, landline phones, paging and Voice over Internet Protocol (VoIP).

Contributions to the Universal Service Fund are required as rates. Required USF contributions are a percentage of a company's interstate and international service end-user revenues. This percentage is then multiplied by a variable called the "contribution factor," which is a number set by the FCC. Contribution factors are calculated and administered on a quarterly basis.

Some service providers choose to pay for their required contributions by billing customers with an additional Universal Service Fund charge. To customers, this will be a percentage of their total phone or internet bill, and itemized as a "Universal Service" fee. The FCC does not require service providers to charge consumers for their USF contributions, but allows it as an option. The FCC does not allow companies to collect more money in Universal Service fees from customers than they contribute to the fund. Furthermore, service providers are forbidden from collecting Universal Service fees from members of their Lifeline low Income support program.

Contributions to and distributions from the USF are managed by a nonprofit organization called the Universal Service Administration Company (USAC). The USAC collects required contributions from the communications companies, sends the money to the proper recipients and sets the contribution factor for each quarter.                                 

Components of the Universal Service Fund 

The purpose of collecting money for the USF is to fund four programs: Connect America Fund, Lifeline, Rural Health Care and E-rate. These programs are administered under the USAC, which operates under the direction of the FCC.

The Connect America Fund, also known as the high-cost program, exists to make modern telecommunications networks accessible and affordable for rural, isolated and high-cost areas. The Connect America Fund works by providing subsidies to telecommunications carriers that provide broadband service for these communities. Providing service for rural and isolated communities is less profitable than in densely populated areas: telecommunications carriers pay similar costs to operate, but there are fewer paying consumers for the same area to generate revenue. The Connect America Fund aims to prevent this lesser profitability from deterring telecommunications companies from providing service to these rural communities, as a lack of access to modern communications networks can stifle their economic growth.

The Lifeline, a low-income program, has existed since 1985 and subsidizes phone services for Americans below the poverty line. The program was first designed to ensure landline phones were in each household; soon, the program began to focus on mobile phones. As of 2016, the Lifeline program offers broadband internet connectivity. The Lifeline program limits one subsidy per household, and can provide up to $10.00 per month for each member. However, under the Lifeline program, Native American communities may qualify for subsidies of up to $25.00 per household each month. Previously, the Lifeline program helped with phone service installation fees; however, this was canceled in 2012.

The Rural Health Care Program provides subsidies and funding for telecommunications and broadband services to eligible healthcare providers that serve rural communities. One of its objectives is to help healthcare providers in rural communities receive telecommunications services at rates comparable to those in urban areas. Another objective is to enable telehealth/telemedicine services through high speed internet access. The development of video conferencing infrastructure and networks would allow rural doctors and patients to regularly consult experts in distant cities, to provide the best healthcare experience. The Rural Health Care program consists of two components: the Telecommunications Program and the Healthcare Connect Fund (HCF) Program. The Telecommunications Program, previously known as the Primary Program, subsidizes telecommunications services for eligible healthcare providers. Under this program, the rate difference between urban and rural telecommunications is subsidized, allowing eligible providers access to urban rates, which are less expensive than rural rates. The Healthcare Connect Fund Program provides a 65% discount for various communications-related expenses, such as digital service line (DSL), internet access, dark fiber, private carriage and business data services. This discount is for eligible rural providers, as well as eligible non-rural providers that belong to a consortium where 50% or more of the providers are rural.

The E-rate program, also called the schools and libraries universal service support program, helps educational institutions get affordable access to broadband connectivity. Levels of discount and financial support are determined by a variety of factors, such as poverty level, urban vs. rural location, if the school is on tribal land, or if the school services students with medical issues, behavioral issues or other disabilities.

History of the Universal Service Fund

The idea of Universal Service was first introduced into U.S. legislation through the Communications Act of 1934, which created the FCC. The aim was to offer US citizens "a rapid, efficient, Nation-wide, and world-wide wire and radio communication service with adequate facilities at reasonable charge."

Earlier, creating Universal Service focused on the physical expansion of network infrastructures and regulation of pricing and quality. This led to the government granting AT&T a natural monopoly throughout most of the country. In less-populated areas where AT&T did not offer service, communications services were offered by small, locally-owned companies. The first funding for Universal Service came from AT&T paying the smaller service companies access charges for long-distance calls that used their locally-built infrastructures. Only long-distance carriers that went through state borders were required to pay contributions to Universal Service, even after AT&T was broken up in 1982.

Universal Service remained relatively unchanged until the Communications Act of 1996, which overhauled much of the previous plan by opening up many communications network markets to competition. The Communications Act of 1996 also introduced guiding principles that eventually led to the development of each of USF's individual programs. Furthermore, this act narrowed its definition of which communications companies qualified to receive assistance from this program, while also expanding which companies must contribute. Previously, only long-distance carriers had to contribute to USF; the 1996 act required that all communications companies contribute finances.

Furthermore, the Communications Act of 1996 created the USAC, which is tasked with managing operations regarding the fund. The Communications Act of 1996 also created a Federal-State Joint Board on Universal Service, comprised of FCC and state utility commissioners, as well as consumer advocates.

In March 2010, the FCC released the National Broadband Plan as directed by Congress. The plan aimed to ensure that every American has broadband access.

In February of 2011, the FCC released a Notice of Proposed Rulemaking. The objectives of this reform were to modernize the USF programs for broadband service, maintain fiscal responsibility while the USF is shifted to focus on broadband, require accountability from supported companies and create incentive-based policies to guide service providers.

In October of 2011, the FCC implemented the "USF/ICC (Intercarrier Compensation) Transformation Order." The objectives were to advance voice service quality, ensure universal availability of voice and broadband, to ensure comparable rates for broadband and voice services across locations and to minimize the financial burden of required contributions to USF among both businesses and consumers.

This order also replaced the older high-cost program with the Connect America Fund, to incentivize providers to offer service in isolated parts of the country with broadband infrastructure. The Connect America Fund also aimed to improve mobile broadband and make it available to all Americans, at prices comparable to urban rates.

This was last updated in July 2020

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