Is Your Universal Service Fund Contribution About to Be Reduced?

When the Federal Communications Commission (FCC) reclassified broadband as a Title II service, it eased the path for the Universal Service Fund (USF) to collect contributions from those providers. The reclassification means broadband is in the same category as plain old telephone service (POTS) and can now be regulated as a public utility.

If this isn’t a subject your communications company is talking about, I wouldn’t blame them. With so much excitement surrounding coinciding issues related to net neutrality, many providers haven’t spent a lot of time considering implications of what the reclassification might mean for USF.

Yet the move is an important one. It means the Commission could more easily expand federal USF contribution requirements to include broadband and Internet access. It might even increase the chances that ISP offerings could be made subject to local, state and federal taxation—just as phone service is.

To understand how this could impact your taxing and billing processes, let’s take a closer look at these changes.

Why the change?

A long time ago, in a decade far far away, everyone communicated via POTS. It was the only option people had. During that time, the FCC established the Communications Act of 1934.

At the heart of this law was the universal service principle that all Americans should have access to basic “lifeline” communications services. With a steady stream of revenue from voice providers contributing to a fund, universal service policies and programs were able to make phone service ubiquitous in even the most remote, rural areas.

Fast forward to 2016, when high speed Internet is recognized as the 21st century’s essential communications technology. The FCC is working to make broadband just as ubiquitous as voice. But there’s also a mandate to continue supporting voice service, which means there’s a need for fresh sources of funding for both missions.

The investments necessary to keep these communications services available to all Americans are incredibly costly. As in several billions of dollars a year costly. There's tremendous pressure to generate increasing amounts of money to support USF programs that connect more citizens, schools, libraries and other facilities with broadband.

But the contribution base keeps shrinking as wired voice calls approach extinction. The commission sees reform of USF as a key way to solve this problem.

Since universal service funds are now being spent to expand broadband access, it’s not surprising that the FCC would want to obligate those providers to contribute to the fund.

How does this change the stakes for broadband providers and other CSPs?

While no big changes have occurred yet, they’re likely coming. And they’re also likely to impact not only broadband but other communications service providers (CSPs) as well. Here are three big implications to watch for:

1. Some service providers, particularly voice-only operators, could see a notable decline in their contribution rate. With the current contribution factor headed toward 18.2%, this is welcome news.

2. Broadband might begin contributing to the USF and could even carry the bulk of the weight. As approved USF programs shift from high-cost voice support to high-cost broadband support, Title II makes it easier to shift financial responsibilities as well.
3. Broadband providers may have more opportunities to expand into rural areas as the fund continues to move toward making this “lifeline” service available to all Americans.

If USF is indeed expanded by bringing broadband and SMS (and other services) under its purview, CSPs can expect to face additional layers of operational overhead and billing challenges. The sooner your communications tax software is equipped to handle new requirements and meet new compliance regulations, the better.

Would you like more details on how the pending changes could impact your company? I highly recommend downloading our latest communications white paper, which goes into greater detail on the pending USF changes and coinciding net neutrality issues. Download the free white paper here.