Reforming Universal Service Contributions Would Not Harm Broadband Adoption

This analysis explores, from an economic perspective, the effects of modifying and expanding the “contribution base”—the supply of financial resources for the Universal Service Fund—to include both voice and broadband connections. While the Federal Communications Commission has updated the way universal service funds are distributed to orient them more toward support of both voice and broadband services, the contributions system that pays for the FCC’s mission-critical USF initiatives continues to rely precariously upon a dwindling pool of revenues from legacy services. As it currently stands, despite the promotion of broadband representing a key universal service objective today, broadband is not included within the services that are in turn assessed to support the USF. As a result, the burden of supporting the broadband-focused USF falls disproportionately (and somewhat ironically) on consumers buying traditional telecommunications services like “plain old telephone service.” And, as more Americans migrate away from such services and toward broadband, the “contributions base” used to fund the USF continues to decline—placing an even greater inequitable strain on the remaining contributors and putting at potential risk the sustainability of the very programs that are doing the most to promote access to broadband now.

The analysis concludes that the impacts of including a USF-related contribution surcharge equal to a 1% increase in the price paid for broadband could reduce broadband demand by 0.08%. This would mean, for example, that for every 1,000 consumers spending $80 per month on broadband, an $0.80 USF contribution surcharge might cause one consumer at most to reduce his or her broadband purchase in some way. The analysis also observes that this estimated potential reduction in broadband purchases does not take account of any potential gains in adoption realized and sustained as a result of programs supported by a more stable USF.