Gregory Rosston

Two very real Universal Service Fund (USF) problems need to be addressed: funding and spending. The way the program is funded is inefficient, unsustainable, and regressive. Regardless of the judicial outcome, the tax that the court declared unconstitutional is both inefficient, by taxing a small, price-sensitive, declining base, and regressive, with a higher proportional burden falling on those least able to afford it. The program spends too much money on the wrong things. The High Cost Fund in particular, which accounts for about half of total spending, is outdated and wasteful.

On May 2, the Senate will hold a hearing on “The Future of Broadband Affordability.” The Affordability Connectivity Program (ACP) that provides subsidies for more than 20 million low-income households will expire in May. Without the extension, these families will see the cost of the internet service increase by up to $30 per month and prompt some families to drop internet service altogether.

We write to provide economic insight to help states maximize the benefits of its Broadband Equity Access and Deployment (BEAD) and other funds for its residents. Several economic concepts are critical to maximizing the benefit of the BEAD money for state residents.  

The Universal Service Fund (USF) is inefficient, ineffective, and funded by a regressive tax mechanism. Several reforms could improve the program:

The Infrastructure Investment and Jobs Act (IIJA) included some $42.45 billion to ensure “access to affordable, reliable, high-speed broadband” throughout the United States. However, $42 billion is unlikely to be sufficient to serve all households. To maximize the number of households receiving service, awards need to ensure sufficient quality at the lowest cost.

The National Telecommunications and Information Administration (NTIA) is beginning an epic effort to implement the broadband provisions of the Infrastructure Investment and Jobs Act (IIJA). Congress allocated $42.45 billion to build rural broadband through the Broadband Equity, Access, and Development (BEAD) Program, and these resources have the potential to provide internet access to most if not all households that do not currently have access. NTIA states in its Notice of Funding Opportunity (NOFO) that its focus is to provide service to unserved and underserved areas.

The Technology Policy Institute recommends that the National Telecommunications and Information Administration (NTIA):

In the middle of the pandemic, the Federal Communications Commission used a reverse auction process to save taxpayers about $7 billion on projected expenses of $16 billion for broadband service to unserved areas — nearly a 50 percent savings!

The next administration should launch a concerted broadband data-collection and analysis effort to support smart, timely, and informed decision-making by the Federal Communications Commission (FCC) and other agencies that work on broadband, such as the Rural Utilities Service. Specifically, the FCC should collect (or work with others to collect) comprehensive data on the following eight indicators:

The key missing component of nearly every proposal to solve the connectivity problem is evidence — evidence suggesting the ideas are likely to work and ways to use evidence in the future to evaluate whether they did work. Otherwise, we are likely throwing money away. Understanding what works and what doesn’t requires data collection and research now and in the future. It doesn’t have to be this way. The pandemic did not only lay bare the implications of the digital divide, it also created a laboratory for studying how best to bridge the divide.