On January 12, 2024, FCC Chairwoman Jessica Rosenworcel sent a letter responding to a series of questions from Senator Lujan regarding proposals to modify the contribution base for the Universal Service Fund (USF).  As our firm has previously advised in multiple client advisories, the federal Universal Service Fund (USF) contribution system is under considerable stress due to a dwindling revenue base from traditional interstate telecommunications services:

• Recent Legislative and Judicial Developments Suggest Universal Service Fund Contribution Reform is on the Horizon
• Universal Service Fund (USF) Working Group Request for Comment

The recent exchange between Senator Lujan, who is heading up the USF Working Group in the U.S. Senate, and the FCC’s Chairwoman may be interpreted as a sign that Congress is readying a legislative package to overhaul the USF contribution system, potentially to head off the consequences of a Supreme Court review of the constitutionality of the program’s administration.  The following is a summary of the Chairwoman’s letter:

The USF plays a vital role in ensuring that people across the United States have access to essential communication services in the modern age. Since the establishment of the current contribution framework in 1996, there have been significant changes in the way we communicate, with broadband internet access becoming increasingly crucial. Chairwoman Rosenworcel acknowledges the need for reform to ensure a sustainable funding model that takes into account the evolving telecommunications landscape and potential cost burdens on consumers.

Under the Communications Act, the current system requires telecommunications service providers and certain other providers to contribute to the USF based on a specific, predictable, and sufficient mechanism. This mechanism involves setting a contribution factor and applying it to certain types of providers’ revenues, calculated quarterly. Providers can pass on their USF contributions to their customers, impacting consumer bills.

The contribution system, as it stands, reflects only a small portion of today’s communication landscape, with more people relying on internet-based services such as messaging, streaming, and cloud computing. This shift has led to a declining contribution base, as providers report decreasing telecommunications revenues and increasing non-telecommunications revenues.

Chairwoman Rosenworcel highlights several potential options for reforming the USF contribution system, each with advantages and disadvantages and varying cost implications for consumers. She references the “Future of USF Report,” which details different reform options, some of which require legislative action and assess revenues from additional services or providers not currently contributing directly to the USF.

The three mechanisms mentioned in Senator Lujan’s letter for potential reform are:

1. Expanding the contribution base to assess broadband revenues.
2. Expanding the contribution base to include edge providers.
3. Expanding the contribution base to include digital advertising.

Chairwoman Rosenworcel provides estimates of the potential impacts of each option on consumers. Notably, expanding the base to assess broadband revenues could result in higher monthly broadband bills for consumers, while including digital advertising in the contribution base may have a smaller impact on consumer bills.

The letter also discusses the impact of assessing business-to-business transactions, emphasizing the need for additional data collection to fully understand the potential impacts on the contribution factor and consumers.

Finally, Chairwoman Rosenworcel addresses the impact of setting a target contribution factor or funding the USF through congressional appropriations. While these approaches have their merits, they may pose challenges in maintaining predictability and sufficient funding for USF programs.

In conclusion, the response from Chairwoman Jessica Rosenworcel provides valuable insights into the complexities of reforming the USF contribution system and highlights the importance of considering the impact on consumers while ensuring sustainable funding for essential communication services.