Bridging the Gap: Funding Universal Service in the Broadband Era

Policymakers’ attempts to keep up with the shifting nature and increasing importance of communications services have fallen short, and the digital divide persists between those who have up-to-date technology access and those who do not. Current Universal Service Fund (USF) programs have proven insufficient to address affordability, and it is increasingly evident that an effective universal service policy will also need to address adoption and digital literacy. The primary roadblock constraining existing USF programs and standing in the way of developing new and needed programs is the USF’s unique funding mechanism. USF programs are funded not by congressional appropriations, but through a system of mandatory contributions from telecommunications providers based on only a small portion of their overall revenues. Basing the contribution formula on this limited “contribution base” results in the obligation to fund USF programs falling on providers in disproportionate ways, and has driven a steady rise in the contribution factor—which is projected to reach a record high of 39 percent. A look at the history of USF, which includes perennial disagreement over whether the formula is “equitable and nondiscriminatory” as required by the law, suggests that an update is long overdue. The range of interim changes adopted by the FCC since the program’s conception has failed to keep pace with the communications industry’s evolving business. And despite several well-explored options—whose respective pros and cons we lay out in this report—Congress and the FCC have enacted no meaningful reforms. More fundamentally, this report argues that current debates turn the problem on its head. Congress and the FCC are dooming themselves to failure by reprising the same repeated arguments over the pros and cons of various systems while presuming an environment of scarcity. In doing so, they are missing the central question: What investments are needed to achieve universal service? A close read of Congress’s broad universal service mandate suggests that the starting point, and framing contours of the debate, should be a holistic assessment of the size and kinds of universal service funding needs today. With significant advances in infrastructure deployment underway, major avenues for reform should include an expanded affordability program and new programs addressing other barriers to adoption, such as gaps in digital skills.