Universal Service Fund on Your Conference Calls

In 1996, the Federal Communications Commission wanted to find a way to increase access to telephony services to rural parts of the United States. Since these areas were considered to be "high-cost" the FCC enacted a subsidy in order to extend services to these areas. To fund the subsidy, the FCC collects a fee each month on your telecommunication bills. This collection is then divided out among various programs by the Universal Service Administrative Company (USAC).

The Universal Service Fund (USF) was designed to support four programs:

  1. Connect America
  2. Lifeline (Low income families and tribal areas like reservations)
  3. Schools, Libraries, Hospitals
  4. Rural health care systems.

The USF is collected on anything considered a telecommunications service. This includes your home phone, cell, conference bridges, VoIP services, etc. At the time of this writing, the fee is collected at roughly 17%. In 1996, the USF was collected at roughly 5% of your telecommunication bill. Each quarter the USF has shown a steady increase and at this rate of collection, the 2015 projection shows that the USF is expected to grow to $10 billion.

In 2013, the USF collections and distributions broke down across each program like this:

As you can see, the 2013 distributions are not even across each program. Also, anytime a program costs more to administer than it’s awarded subsidy, it will raise a question about the government program. These distributions, continued funding for outdated technology, and even reported cases of fraud, have caused people to question the validity and usefulness of the USF.

Because of these arguments, in 2011 the FCC revisited the structure of the USF and made a number of changes. You see, until 2011, the USF had no checks or balances, no specific limitations, and no funding caps. The primary purpose of the 2011 revisit was to serve the rural community with new technologies like high speed broadband services.

FCC Chairman Julius Genachowski stated, "Broadband has gone from being a luxury to a necessity for full participation in our economy and society." The commission decided to reform the USF and began moving their resources to support supplying broadband service to rural areas. These changes include:

  • Refocus the USF to provide broadband access to all Americans and accelerate the transition to IP networks.
  • Reduce waste and inefficiency in the USF.
  • Create and transition to incentive-based policy that encourages maximum value for consumers.
  • Finally require accountability from companies who receive support and from the government agencies that administer the funds.

The same report also announced the first comprehensive budget for the USF since 1996. The annual funding budget was frozen at $4.5 billion dollars over the next six years and deployed as a two part system to fund broadband in rural areas. For the first time, this plan includes offering bidding to various carriers to provide the services.

While the fund has been capped at $4.5 billion, the contribution factor still tends to fluctuate quarter to quarter.

When you make a call to your conference provider on your cell phone you will see a USF collected both from your conference provider and on your cell phone bill. This means that when you make a conference call from your cell phone, you are paying the USF twice for the same minute.

So how is it that as more and more people have been given access to telecom services than ever before but the percentage of collection cannot even out?

For some the answer to that question is to point to the questions about the fraudulent and questionable activity surrounding the administration of the fee.

The majority of these cases involve the Lifeline program. The Lifeline program provides telephone services to low-income families. In order to qualify for the phone, you must fall below the national poverty line and / or qualify for other government assistance programs like Welfare or Medicaid. The Lifeline program counted for 20% of the USF distribution in 2011 and was the easier of the programs to defraud. Only recently have TracFone (the provider of Lifeline services) and the FCC began to make changes in the accountability process for the program. Keep in mind this program was instituted in 1996 and the following were adopted in 2012:

  1. Collecting data to determine eligibility.
  2. De-enrolling individuals after 60 days of no-use.
  3. Document storage to ensure proper auditing by the FCC and that the benefit is extended to one per household.

Addressing Fraud Concerns

In addition to the criminal activity that makes its way through the court system, a 2014 Government Accountability Office report recommended that the FCC provide proof to how the funds have been used to improve broadband availability to rural areas and in what quantity. The GOA requested that the FCC conduct and disclose findings on service quality, capacity, and analysis of carrier data. The FCC agreed with this recommendation, but as of writing, there has been no official release of the information from the FCC.

In June 2014, the FCC announced the creation of a "Strike Force" to respond to these types of fraudulent activity and abuse. This "Strike Force" will work with the Office of Inspector General and the DOJ to seek out, stop, and prosecute unlawful conduct or fraudulent activity.

In addition, the 2011 changes hoped to place better regulations on the USF as well as providing an umbrella of protection against fraudulent activity. As Phase Two of the CAF broadband program begins to roll out, we will continue to see adjustments of the fund collection and hopefully better understanding of where the money is going.

You can express your feelings about the USF by contacting your member of Congress.

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