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Tax Day Thoughts on the Non-Tax USF Tax

by on April 15, 2011 · 1 comment

While most folks have been obsessing over their income taxes the past few weeks, Jerry Brito and I have been obsessing about a non-tax: the universal service assessments on our phone bills.

More specifically, the Federal Communications Commission has asked for comments on its plan to gradually turn the current phone subsidy program in high-cost rural areas into a broadband subsidy program in high-cost rural areas. This opens up a big tangled can of worms.  Comments are due Monday.  We deal with two issues in our comment:

Definition of broadband: Thankfully, the FCC is asking for comments on its proposal to define broadband as 4 Mbps download/1 Mbps upload. This is an important decision with a big effect on the size of the program. The 4 Mbps definition more than doubles the number of households considered “unserved,” because it doesn’t count 3G wireless or slower DSL or slower satellite broadband as broadband. It also raises the cost of the subsidies by requiring more expensive forms of broadband.

The definition fails to fit the factors the 1996 Telecom Act says the FCC is supposed to consider when determining what communications services qualify for universal service subsidies.  A download speed of 4 Mbps is not “essential” for online education; most online education providers say any broadband speed or even dialup is satisfactory. Nor is that speed “essential” for public safety; the biggest barrier to public safety broadband deployment is creation of an interoperable public safety network, which has nothing to do with USF subsidies. And the proposed speed is not subscribed to by a “substantial majority” of US households.  The most recent FCC statistics indicate that the fastest broadband download speed subscribed to by a “substantial majority” of US households is probably 768 kbps.

Definition of performance measures: Fifteen years after passage of the legislation that authorized the high cost universal service subsidies, the FCC has proposed to measure the program’s outcomes.  Actually, the FCC wants to measure intermediate outcomes like deployment, subscribership, and urban-rural rate comparability — not ultimate outcomes like expanded economic and social opportunities for people in rural areas.  But it’s a start …  provided that the FCC actually figures out how the subsidies have affected these intermediate outcomes, rather than just measuring trends and claiming the universal service subsidies caused any positive trends observed.  We have some suggestions on how to do this.  

Our full comment is available here.

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Mississippi leads the nation …

by on January 6, 2010 · 2 comments

… in receiving support from the Federal Communications Commission’s Universal Service Fund.

In case you missed it, on December 31 the Federal-State Joint Board on Universal Service issued its 2009 Universal Service Monitoring Report. This 568 page report compiles a massive number of statistics on the Federal Communications Commission’s $7.6 billion Universal Service Fund.  This fund subsidizes phone service in high-cost areas, phone subscriptions for low-income households, Internet service for schools and libraries, and Internet connections for rural health care facilities. About 60 percent of the money — $4.4 billion — goes to “high cost” (usually rural) phone companies.

U Service fun facts 2009

The money comes from the universal service charge on your wired, wireline, or VOIP phone bill. (That’s why the phone companies put the FCC’s phone number on the bill, so you can call the FCC if you have questions about this charge. Isn’t that thoughtful!)

Virtually every table in the Monitoring Report is fascinating. But check out some of the statistics to the right, which came from Table 1.12.  After substracting the universal service charges paid by its citizens, Mississippi received the highest net amount from the Universal Service Fund — $258 million. Alaska, Puerto Rico, Kansas, and Oklahoma round out the top five net recipients.

Some states are net payers. Florida paid $304 million more into the Universal Service Fund than its phone companies, low-income consumers, schools, libraries, and rural health facilities received back. Not surprisingly, other big, high-income states with large urban areas are also big net payers.

Some states receive close to what they pay in. Although Texas is a big Universal Service Fund recipient ($511 million in 2008), Texas telephone customers also pay a lot into the fund ($508 million in 2008). Thus, Texas received a net $3 million from the Universal Service Fund. Other states close to breakeven are Arizona, Missouri, Oregon, and South Carolina.

For 2008, I counted 22 states that are net recipients of $15 million or more, and 23 states that are net payers of $23 million or more.

And you thought you had fun on New Year’s Eve!

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Is the FCC jumping the gun on broadband and the universal service fund?

by on December 2, 2009 · 0 comments

In a speech yesterday, FCC Chairman Julius Genachowski pledged to revisit the Federal Communications Commission’s universal service programs for telecommunications as part of the National Broadband Plan: 

 The key points for today are these: USF is a multi-billion dollar annual fund that continues to support yesterday’s communications infrastructure. The goal of universality is as important as ever — and to meet our country’s innovation goals, we need to reorient the fund to support broadband communications. This is a thorny issue, with no shortage of practical and statutory challenges. We need to wring savings out of the system, protect consumers, avoid flashcuts, while ultimately moving USF in the direction it needs to go to support our 21st century platform for innovation. 

The USF program spends approximately $7 billion annually. Most of the money goes to subsidize phone service in “high cost” areas. Eeuww – phone service.  So twentieth century! All of us who have not yet shifted 100% of our personal communications to Facebook and Twitter pay for the universal service fund via surcharges of about 12 percent on our wireless and  wireline phone bills, including VOIP. (Dirty little secret: you also pay for universal telephone service if you use a wireless broadband card, because each card is assigned a phone number.) 

Genachowski’s comment follows some rather interestingly-timed announcements from the FCC’s broadband task force. On November 13, the task force asked for public comment on the role the universal service fund and “intercarrier compensation” (another, more opaque set of transfers from consumers in general to rural phone companies) should play in the national broadband plan. Comments are due December 7. Five days after soliciting comments, on November 18, the FCC announced that the structure of the universal service fund is one of the “critical gaps” in the path to universal broadband.

I doubt the FCC has telepathically determined what the parties will say in the comments they file on December 7, but there’s no need to. The FCC has ground through so many rounds of comments on universal service reform that the problems and potential solutions are well-known. At a conference on universal service about five years ago, I recall one speaker commented, “Everything that can be said about universal service has already been said, but not everyone’s had a chance to say it, so that’s why we still have conferences on it.” About a year ago, the FCC almost used a court-imposed deadline as an opportunity to actually reform universal service and intercarrier compensation, but the commissioners failed to reach consensus.

Here are some major problems with the universal service fund, in no particular order:

  • It subsidizes voice phone service with built-in incentives for inefficiency on the part of providers.
  • It subsidizes wireless voice service without limiting the subsidy to one essential connection per household, so it has effectively created an entitlement to both wired and mobile phone service in rural areas.
  • The FCC does not measure or track the outcomes produced by the subsidies to see what they actually accomplish for the public. (Section 201 of the draft Boucher-Terry USF reform bill would require the FCC to adopt outcome-oriented performance measures.)
  • The contribution mechanism acts like a percentage tax that discourages use of price-sensitive services like long-distance, wireless voice, and wireless broadband.
  • The “death of distance” has slashed long-distance phone charges, which means wireless bears a growing percentage of the burden and the funding mechanism may well be unsustainable.

(For more detail on these issues, read the assortment comments on USF reform by various Mercatus Center colleagues and me here, here, here, here, here, here, here, here, here, and here. BTW, did I mention this issue has been beaten to death?)

So is the FCC jumping the gun, rushing to judgment on universal service before the comments are in?  Heck no. It’s about time.

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Special Election Day Telecom Blog Post and News Report

by on November 4, 2008 · 9 comments

I’ve just posted two new entries over at BroadbandCensus.com (in addtion to the one about FCC v. Fox Televisions Stations) below. Now, I’ve got to go and vote.

The pieces at BroadbandCensus.com include a blog post about the real issue in white spaces: not broadcasters versus techies, but keeping the current Swiss-cheese arrangement in the airwaves versus clearing the broadcasters out of their radio frequencies entirely.

Also, in a special election day news report, myself and Drew Bennett have written about the delay in the vote over the universal service fund and intercarrier compensation overhauls.

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Should Government Funding Be Part of a Broadband Plan? Have Your Say on November 18

by on October 22, 2008 · 7 comments

Readers of Tech Liberation Front may be interested in a new breakfast series that BroadbandCensus.com has recently begun.

The next event in this series, “Should Government Funding Be Part of a National Broadband Plan?” will be held on Tuesday, November 18, from 8 a.m. to 10 a.m., and will include Stan Fendley, the director of legislative and regulatory policy for Corning, Inc., Kyle McSlarrow, CEO of the National Cable and Telecommunications Association (NCTA), and John Windhausen, Jr., president of Telepoly Consulting. I will moderate the discussion.

Two weeks after Election Day, this Broadband Breakfast Club meeting will consider one of the hottest topics in telecom: can and should funding for broadband work its way into a pending fiscal stimulus package?

Future meetings of the breakfast club (December 2008 through March 2009) will consider the role of broadband applications in harnessing demand, how the universal service fund will be changed by high-speed internet, the role of wireless in universal broadband, and the extent of competition in the marketplace.

The Broadband Breakfast Club meets monthly at the Old Ebbitt Grill, at 675 15th Street, NW, in Washington. (It’s right across the street from the Department of the Treasury.)

Beginning at 8 a.m., an American plus Continental breakfast is available downstairs in the Cabinet Room. This is followed by a discussion about the question at hand, which ends at 10 a.m. Except for holidays (like Veteran’s Day), we’ll meet on the second Tuesday of each month, until March 2009. The registration page for the event is http://broadbandbreakfast.eventbrite.com.

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