USF Announces Another Rate Hike for Q4 2024
By Lawson Faulkner
On Thursday, the FCC announced yet another rate hike for its Universal Service Fund (USF), a controversial program responsible for subsidizing phone service. For service providers and consumers alike, the growth of this quarterly burden appears to be unending, signaling a need for substantive USF funding reform.
Under the Telecommunications Act of 1996, the USF was established to expand telecommunications access to rural and low-income communities. Funded by contributions from wireline and wireless service customers, the USF bankrolls a plethora of subsidiary programs, including Lifeline, E-Rate, High Cost, and Rural Health Care. According to the Universal Service Administrative Company, the FCC has recently sought USF reform to “eliminate waste in the programs”, while simultaneously safeguarding broadband expansion.
For the fourth quarter of 2024, FCC officials have mandated a 35.8 percent contribution for telecommunications companies generating end-user revenue. This would be a 4 percent increase (on 34.4 percent) from the third quarter of 2024, and a 9 percent increase (on 32.8 percent) from the second quarter of 2024. Over the past four years, the USF contribution rate has ballooned nearly 69% from the first quarter of 2020 when it stood at 21.2 percent. Although these fees are officially charged to phone companies, USF rate hikes are often passed on to everyday consumers, constituting an excessive tax on phone service.
Throughout the telecommunications industry, sentiment has been steadily building against USF contribution mandates, with quarterly rate hikes becoming a staple of the program. Although there has long been bipartisan support for USF funding reform, lawmakers have struggled to reach a consensus on what that should look like. Nevertheless, without substantive USF reform, American consumers will continue to suffer under incessant rate hikes.
Numerous industry pundits have offered solutions to the USF’s perpetual woes through internal reform. According to the American Action Forum, these proposals can largely be grouped into three alternatives. First, some advocates have suggested an expansion to the telecommunication services eligible for USF contribution. However, some critics have urged caution, insisting that expanded contributions “could affect adoption and retention rates of broadband services.” Second, some have called for increased contributions from technology companies, which utilize broadband infrastructure at a disproportionately high volume. According to a 2021 study, streaming services comprised 75% of all traffic on sampled broadband networks within rural communities.
Lastly, many critics of the USF have proposed an overt abolition of the program. In 2023, Digital Liberty advocated for sunsetting the USF in favor of the Broadband Equity, Access and Deployment (BEAD) program for deployment and the Affordable Connectivity Plan (ACP) for access. This strategy would involve weaning broadband networks off USF, among other excessive federal broadband subsidy programs. According to a 2022 report by the Congressional Research Service (CRS), there are “over 100 federal programs—administered by 15 agencies—that could be used to expand [broadband] access”, calling into question the utility of the USF.
Whatever the superior solution may be, it is undeniable that the USF needs substantive reform. In an already oversaturated field of federal broadband subsidizers, the relevance of the USF dwindles with each quarterly rate hike. Without decisive action, these escalating costs will undermine the expressed purpose of the USF altogether, harming both affordability and accessibility to telecommunications services. Lawmakers should move to reign in the exorbitant demands of the USF.