New Year, New Solutions: Reforming Universal Service Contributions

Joan Marsh
January 14, 2021
Broadband Access and Affordability

New Year, New Solutions: Reforming Universal Service Contributions

On January 1, 2021, the Universal Service Fund contribution factor officially hit 31.8% — a new and alarming all-time high.  Policymakers have wrestled with concerns over the rising factor for years but crossing the 30% threshold is a serious wake-up call.  A USF contribution factor of around 5% was the norm until 2005 when it hit 10% for the first time.  It took 13 years (until 2018) for the factor to reach 20%, but just two years to climb to the once unimaginable milestone of 30%.  Given these trend lines, dramatic reform of the mechanism can no longer wait.

Adding to the urgency is the recognition by Congress that low-income households need financial help to ensure they can subscribe to broadband.  The $3.2 billion Emergency Broadband Benefit Program, which promises up to $50/month towards broadband service, is a real step in the right direction.  But those dollars will be quickly exhausted.

Based on the Universal Service Administrative Company’s most recent numbers, there are 33.2 million households eligible for the existing Lifeline program.  If only half of these households take advantage of the emergency benefit, it will cost as much as $800 million a month.  At that rate, the new funding will be gone in as little as 4-6 months, faster if you factor in the additional eligible groups and the promise of up to $100 in connected device reimbursements.

And when that funding is exhausted, policymakers will not be able to look to the current Lifeline program to continue the Emergency Broadband Benefit Program.  A discount of $50/month for just half of eligible Lifeline households would increase the cost of the existing fund from just under $900 million/year to $9.6 billion/year.  And that’s just half of eligible households.  In that scenario, an already unsustainable 31.8% factor would rocket to over 65% and accelerate as the current inadequate revenue base continues to erode.

Universal service contributions reform is no longer optional.  It is time for new solutions.

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