- The Supreme Court’s decision on USF legality is looming
- BEAD shifting funds to satellite also poses a problem to USF’s future
- The biggest issue still lies with the USF’s shrinking contribution base
The clock is ticking until the Supreme Court issues its verdict on the $8 billion Universal Service Fund (USF). Even if USF survives the legal battle, the question remains – what then?
The Court’s decision, which will likely happen by the end of June, may ramp up the need for reform. But the restructured Broadband Equity, Access and Deployment (BEAD) program “weakens the economic and political rationale” for USF, said New Street Research Policy Analyst Blair Levin.
Four programs fall under the USF umbrella: Connect America Fund (i.e; the High-Cost Fund), Lifeline, E-Rate and Rural Health Care. The first is geared towards subsidizing rural broadband deployments, mainly through the $20.4 billion Rural Digital Opportunity Fund (RDOF).
Levin has said the Supreme Court “is more likely than not” to uphold the USF’s constitutionality. But with satellite broadband further in the BEAD mix, the federal government may question the need for a High-Cost Fund altogether, he wrote in a note to investors Friday.
Despite satellite’s capacity issues, “as a practical matter, there is already coverage nearly everywhere,” said Levin. That could give the Trump administration enough incentive to declare “mission accomplished” in closing the digital divide.
Without the High-Cost Fund (which has the largest annual budget of the four USF programs at $4.5 billion), political support for programs like E-rate and Lifeline “will be weakened,” noted Levin.
E-rate’s impact on community anchor institutions is particularly “overlooked” in conversations around broadband access, according to SHLB Executive Director Joseph Wender. Approximately 100,000 U.S. schools get discounted telecom services and internet access from E-rate, he said at Fiber Connect this month.
Footing the USF bill
The big issue with the current USF framework is its shrinking contribution base. Funding comes from a percentage of telecom interstate and international service end-user revenues, but that revenue has declined as fewer consumers use traditional telephone services.
Given operators collect more from their subscribers than they take in from USF, Levin thinks “the ending or substantial reduction of the program could be seen as a positive.”
The contribution rate meanwhile continues to climb. The FCC as of March raised the USF quarterly contribution to 36.6%, representing a six-fold increase in the past 25 years.
Right now, only telecom companies are required to foot the bill. But the public in the last few years has called on cloud service providers to pay the USF tax as well.
For what it’s worth, Congress is starting to stir on USF reform. Several U.S. senators this month relaunched the USF Working Group, a bipartisan group that will seek public comment on how to improve the program in the near and long-terms.
Regardless of how the Supreme Court case and BEAD turn out, the USF is in for the ride of its life. Levin predicts the next two years will be “the most pivotal time for USF since the Congress and FCC created the modern system through the 1996 Telecom Act.”