Universal Service Fund (USF): What it Pays for and its Current Goals

October 12, 2011, By Leo Xavier

The Universal Service Fund (USF), which was created by FCC in 1997, has been a program for making sure that reasonably priced phone service is available to all US citizens. The program has done quite well in promoting access to telecommunications services at reasonable rates. But at the present moment, there is an ongoing debate regarding the need for USF reform.

The USF has many goals, and the commission established different programs to make sure that these goals are fulfilled. Let’s take a look at how this fund came into being, and what it deals with at present.




History of the Fund

To understand the full story we have to go back to the Communications Act of 1934. A goal of this legislation was to provide phone service at a reasonable rate to all US citizens.

But since only 40% of US households had phones at the time, the phone companies decided to charge higher long distance rates to spread the financial burden for accomplishing the goal of universal service. This definitely was a burden for customers.

It took some decades for everything to change. In 1996, the Telecommunications Act was passed and it changed the way how funds were collected for universal service. The companies were no longer allowed to charge higher long distance rates.

According to the act, the telephone companies had to pay for the universal service in the form of a tax. These collected taxes constitute the USF and the fund is supervised by the Universal Service Administrative Company (USAC).

Although the 1996 legislation does not ask the companies to bill customers for this tax, it does not ask not to do so as well. That is why the companies collect this fund from all the customers. Now you got the answer to the question you always ask while going through your landline phone bill: “what exactly is this Federal Universal Service Fee?”

The fee that is collected from all the customers by the carriers is forwarded to the USAC.


As required by the 1996 Act, the goals of the USF include the promoting of the availability of quality services at reasonable and affordable rates for everyone; increasing nationwide access to advanced telecommunications services; 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; increase access to telecommunications and advanced services in schools, libraries and rural health care facilities; and providing equitable and non-discriminatory contributions from all providers of telecommunications services to the fund supporting universal service programs.


For fulfilling the above said goals, the commission established four programs. The fund collected by the USAC is distributed to these programs.


The High-Cost program: is meant to ensure that consumers in rural, insular, and high-cost areas have access to telecommunications services at rates that can be afforded and reasonably comparable to those in urban areas. For this, the program provides subsidies to carriers.

The program, which is the largest and most complex of the four programs, makes sure that phone service is available in affordable rates for customers in areas where the service would be dramatically more expensive than the national average without subsidy.

The Low Income program: provides discounts on the installation of telephone and monthly telephone service to low-income consumers. This program has been divided into two programs: the Link-Up America program and the Lifeline program.

Link-Up America helps low-income consumers by providing installation costs of phone service. It pays up to $30 of the installation fees of telephone service, and provides up to $200 of one year, interest-free loans for any additional installation costs.

The Lifeline program provides qualified subscribers with discounts on basic monthly service. Depending on the location, the discounts can be up to $10.00 a month.

Apart from this, additional discounts are available to qualified subscribers living on remote tribal lands.

Enhanced Lifeline assistance (up to an additional $25.00) is available for residents of Native American Indian and Alaska Native tribal communities who face problems such as high prices for basic telephone service, limited local calling areas, inadequate infrastructure, and lack of competition. Those residents are also eligible for receiving enhanced Link-Up support, up to an additional $70.00.

The Schools and Libraries program: provides discounted telecommunications and Internet to all eligible schools and libraries, especially those in rural and economically disadvantaged areas. It is meant to bring every school in the US into the information age.

The program, which is also known as E-Rate, provides subsidies to schools and libraries for four categories of service: telecommunications services, Internet access, internal infrastructure and basic maintenance of internal connections.

Based on need, the subsidies pay a percentage of costs, and the greatest subsidy goes to rural and low-income schools.

Discounts for support range from 20% to 90% of the costs, and it is provided by the service providers based on the level of poverty and the urban/rural status of the population that is being served.

Schools, school districts, and libraries that are eligible to receive the support may apply individually or as part of a consortium, and the applicants must provide additional resources such as end-user equipment and software that are necessary to utilize the connectivity.

The Rural Health Care program: provides discounts to rural health care providers for their telecommunications and Internet services. By giving eligible health care providers easy access to affordable telecommunications services, the program makes sure that good quality health care is available to patients in rural communities.

The Rural Health Care program provides subsidies for “tele-health and tele-medicine” which is a combination of video-conferencing infrastructure and high speed Internet access. This helps doctors and patients in rural hospitals to contact specialists in distant cities, and most importantly they can do it at affordable rates.

The program helps in reducing the rates for service in rural areas to nearly the same as those in urban areas. The funding for this program is capped at $400 million annually.

For fulfilling all the goals, FCC launched the Rural Health Care Pilot Program which funds for up to 85 percent of the costs for: the construction of a state or regional broadband network and the advanced telecommunications and information services provided over that network; connecting to Internet 2 or National LambdaRail (NLR); and connecting to the public Internet.

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