Net neutrality bill could revive overhaul of Federal Universal Service Fund

A bill just introduced in both houses of Congress potentially could restore net neutrality rules that were eased under the Trump administration.

Specifically, the Net Neutrality and Broadband Justice Act would reestablish the Federal Communications Commission’s (FCC) control over broadband infrastructure across the United States, by reclassifying internet services as a Title II telecommunications service, making it an essential utility, like the old telephone monopolies.

The bill was introduced just before the House and Senate went into their August recesses. Whether anything will happen this fall, in the run-up to the midterm election in November, is anyone’s guess.

But if backers get their way and the bill does make it to President Biden’s desk, having a law giving the FCC firm control over U.S. internet service could revive the long-delayed overhaul of the Federal Universal Service Fund charges.

First, a quick history/civics lesson.

Net neutrality has become a partisan roadblock

Net neutrality is the notion that all internet service providers (ISPs) must treat traffic from all customers the same. That was the law of the land prior to 2018, when the Trump-era FCC issued its Restoring Internet Freedom Order, which eased regulatory oversight of ISP services. The goal was to spur investment by allowing ISPs to earn more.

This has become a partisan issue, with Democrats advocating a return to net neutrality, while Republicans favor the approach that allows ISPs to set their own terms.

It’s likely one of the reasons Senate Republicans have blocked President Biden’s proposed fifth member for the FCC’s board of directors. His nominee, Gigi Sohn, supports net neutrality. Her nomination is being held up by senators who ostensibly don’t.

As a result, the FCC board is currently split 2-2 between Democrats and Republicans, which has led to deadlock on a whole list of issues, one of them being reform of the Federal Universal Service Fund (FUSF).

FUSF contribution now at a record rate

I’ve written about problems with the FUSF before.

To recap: The fund was created through a fee on telephone service providers, with the revenues used to extend telephone service into high-cost areas and to fund targeted programs like subsidized communications for schools and health care facilities. 

Since the Obama administration, FUSF dollars also have been used to pay for extending broadband Internet access into high-cost areas. ISPs, however, aren’t required to contribute to the universal service fund.

Today, the problem is that changes in the communications marketplace — videoconferencing and peer-to-peer voice-over-internet calls — have reduced the number of telephone customers paying into the FUSF. At the same time, demand for expensive, new high-speed internet projects has increased. As a result, there are  more fingers in the universal service fund — but fewer dollars in the base the fund is assessed on.

The result is that we now have a 33% FUSF charge that’s being tacked onto telephone bills.

Broadband bill could eventually restart effort to fix FUSF

This brings us back to the Net Neutrality and Broadband Justice Act.

The bill is sponsored by Senators Ed Markey of Massachusetts and Ron Wyden of Oregon (both Democrats). A companion bill was introduced in the House of Representatives by Representative Doris Matsui, a Democrat from California.

While the bill is focused on net neutrality, reclassifying internet service as a Title II necessary utility would make FUFS contribution reform more plausible. That’s because it would lower the potential litigation obstacles involved in extending collections of FUSF contributions to internet service providers.

Continuing to source FUSF contributions solely from the declining base of telephone service users is likely unsustainable though in fairness, that seemed true back when contribution rates were just approaching 20% and now they’re over 30%. Breaking the net neutrality logjam could be the first step toward finally resolving the obvious problems with the universal service fund.

Want to learn more about communications tax? Read Understand the complexity of communications tax to help minimize risk.

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