Universal Service Fund (USF): Why There is a Need to Reform it

October 24, 2011, By Leo Xavier

Earlier, we gave you a report on how the Universal Service Fund (USF) came into being and what it deals with at present. We detailed about the history of the fund, its goals and the four programs that were established by the commission to fulfill the goals.

As you might know, there is an ongoing debate regarding the need to reform the fee.

We will take a look at why the USF has been a controversial issue for many years and why there is a need to reform it.



Just in case you didn’t know, federal legislation to reform the fund has been proposed every year since the year 2002. However, none of these bills have passed.

But everything has to be reformed at some point. At the present, talks are on regarding the need for USF reform and many are pressing for reforms because of the following reasons:

Increasing costs to consumers

The main problem that has to be dealt with is the increase in the USF fee. In the second quarter of 2002, the USF Contribution Rate was 5.7%. That rate reached 15.5% in the first quarter of this year. What makes this even worse is that the consumers do not have any voice in the change in USF fee.


You will know what we are dealing with here if we compare this with something that the consumers does have control of.

Citizens of a city or county are allowed to vote to decide the fate of a proposed sales tax increase of as little as 0.125%. The change in USF fee represents a whopping increase of 272%.

Wasteful spending

The high cost program, which represents 54% of the total USF expenditures in the previous year, is meant to ensure that consumers in rural, insular, and high-cost areas have access to affordable telephone services.


Without the much needed funding from the program, service in some areas would be expensive for consumers and service providers. However, the high cost program has become inefficient.

In the high cost program, the USF fund pays almost $2,000 a month or more than $20,000 a year, for some households to have access to affordable service. This is definitely wasteful spending and the available data is proof on the inefficiency of the program.


Advances in technology

The USF should be reformed according to the advances in technology. At the moment, the fund is providing subsidies for voice landline services. But the technological landscape is ever changing. High speed Internet has started to replace the telephone, and therefore USF reform should happen for providing access to affordable high speed Internet for all.

For this purpose, it is important to identify the areas in the country that are being left behind. These areas are typically rural and places where fast internet connection is either unavailable or is hindered by limited speed and high prices.

After going through all that, you will most probably agree with us on the fact that a USF reform is undeniable. A reform might happen sometime in the coming months.

Whatever changes are coming, it must not only address the shortcomings in the current program, but also should support the long term broadband goals of the country.

Let’s wait and see what all changes are brought to the fund by the FCC. We will keep you updated on the matter. So stay tuned to this space.

In the meantime, you can place your comments in the box below. Do you agree that the USF should be reformed? What all changes should the reform bring?

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