The Universal Service Fund (USF) is a tax-like program established originally in the 1930s, with subsequent alterations in 1996 and 2011. While originally enacted to provide “universal” access to telephone communications, its mandate later expanded to include broadband access. Currently, a nonprofit called the Universal Service Administrative Company (USAC) collects fees, which are actually more akin to taxes, from telecommunications companies. If you’ve ever examined your phone bill, there is usually a line item charge called the Universal Service Fund Fee included. Telecommunications companies are allowed to pass on the fee that is assessed to them at the company level down to consumers, which means that this well-meaning program hikes prices for everyone.
What’s worse is that the USF has had enormous challenges with its funding and execution on its mission. The fees have become historically high, at over 30 percent. Further complicating the picture is the wide range of programs that have been tacked on over the decades. Instead of trying to redeem or expand broken programs like USF, Congress should examine the full array of broadband programs and consolidate or cut funding until one agency has authority over broadband expansion.
The USF program covers not only hard-to-reach consumers in rural areas, but also certain low-income customers, rural hospitals, and even schools and libraries. While this may sound reasonable in theory, the vast array of intended beneficiaries continuously stretches the budget thinner. Even worse is that there are dozens of other similar programs that the federal government runs, often with woefully inefficient results. Take, for instance, the Broadband Equity Access and Deployment program enacted in the Infrastructure Investment and Jobs Act of 2021. This program included an additional $42.5 billion in broadband funding on top of the current federal programs, including USF. Unfortunately, three years later no households have been connected. These programs are both inefficient and duplicative and the USF is no exception.
With regard to USF itself, the problems with government administration of what is fundamentally a private sector issue become readily apparent. USAC overhead has continued to balloon, increasing nearly 30 percent from 2018 to 2023, while simultaneously continuing to spend the bulk of its budget on servicing high-cost areas. While cost and access to telephone service and now broadband may have been Congress’ concern at the onset and during subsequent changes to the programs, it’s clearer than ever that the free market will deliver solutions with greater efficiency than the government. Starlink and fixed wireless internet are fundamentally reshaping the consumer broadband marketplace, connecting rural customers at a far greater speed and efficiency than the government plotting fiber connections through mountain ranges. Congress should reject calls to expand USF and instead consider trimming the fat of the multitude of broadband programs.