The Federal Communications Commission’s (FCC) Universal Service Fund (USF or Fund) has been one of the nation’s most important tools for connecting our nation, including rural communities, low-income families, schools, libraries, and rural health care facilities. However, the funding mechanism that supports the Fund is under significant duress. The “contribution base” – the revenues used to calculate USF contributions – has declined 63% in the last two decades, from $79.9 billion in 2001 to $29.6 billion in 2021.
On March 12, 2019, I was honored to appear before the Senate Communications Subcommittee to testify on “The Impact of Broadband Investments in Rural America.” I provided my personal views, bringing the perspective of a former government official with 22 years of experience at the Federal Communications Commission and National Telecommunications and Information Administration, with the last decade focused on the FCC’s Connect America Fund. My five-minute opening statement follows:
[Commentary] How can we improve the biggest tool to closing the digital divide in the Federal Communications Commission’s toolbox: the Connect America Fund. Back in 2011, the FCC adopted a performance goal for the Connect America Fund of ensuring universal access to fixed broadband and concluded it would measure progress towards this outcome based on the number of newly served locations — but it did not articulate any concrete vision for when this universal service goal might be achieved.
[Commentary] If some areas end up with no winning bidder, does that mean the Federal Communications Commission's Connect America Fund Phase II auction is a failure? The answer is “No!” The FCC will need to look at the results of the Phase II auction to evaluate how universal service auctions are different in practice from spectrum auctions, and adjust accordingly, as necessary.
Under the new Trump Administration, the Federal Communications Commission (FCC) moved quickly to take concrete steps to advance parts of Chairman Pai’s digital empowerment agenda to advance broadband across America. In February, the FCC voted to adopt rules for the upcoming Mobility Fund Phase II auction and the Connect America Fund Phase II auction. More recently, the Chairman established a Task Force to oversee the two auctions, signaling that these auctions are a priority for the agency. That’s progress – but the real question is – what needs to happen next to have successful auctions for these universal service subsidies? The Connect America Phase II auction will focus on two discrete areas of the country – 1) areas where the incumbent telephone company declined an earlier offer of universal service subsidies, and 2) areas that are deemed extremely costly to serve, based on a FCC-developed cost model. The nearly $200 million in annual funding over a ten-year term – almost $2 billion overall – is far below the amount calculated by the model to serve these areas using fiber technology, but support levels could be significantly lower to the extent winning bidders can leverage existing assets or deploy alternative technologies.
With the Trump Administration dangling the prospect of a $1 trillion infrastructure program, now is the time to consider whether a new approach might more effectively address the rural broadband problem.
As a starting point, Congress should consider setting aside some portion of a new infrastructure fund, say $20 billion, for a one-time rural broadband acceleration fund that is expressly designed to make the Federal Communications Commission’s universal service program more efficient. Under this option, a rural area currently without a network capable of meeting the FCC’s 25/3 Mbps benchmark would be eligible for funding. The FCC would set an opening per-location amount for how much it would be willing to pay a carrier in one-time support to deploy a next generation network providing enough bandwidth to meet the upper bounds of future expected demand (for example, a symmetric 100 Mbps) within a set time frame. An express condition of the support would be that the FCC will not provide any ongoing funding in the future. If companies recognized this is their best chance to finance a “future-proof” solution, the aggregate of funds sought by the carriers would likely be substantially in excess of the available targeted fund. If this is the case, then the FCC would run a reverse auction, with firms bidding to receive a lower per-location amount in each round until the amount reached the available targeted fund.