Universal Service Fund Under Fire

There have been several lawsuits over the last few years that challenge the legitimacy of the Federal Communications Commission's Universal Service Fund (USF). A suit from a non-profit group called Consumers’ Research argues that USF fees are taxes and that the original creation of the USF was unconstitutional since the Telecommunications Act of 1996 gave the FCC the power to levy taxes. However, the USF has been popular with the public and many politicians because the FCC has been using the USF to tackle issues that are broadly referred to these days as the digital divide. The biggest issue facing the USF is that the funding mechanism is inadequate because the fees that fund the USF are assessed on interstate telephone services and traditional interstate-regulated data circuits—revenue streams that continue to shrink. There has been no noticeable movement in Congress to fix the USF funding mechanism—which could be fixed by creating an actual tax instead of a fee set by the FCC. A lack of action by Congress would mean the end of Lifeline discounts, of broadband payments to schools, libraries, and health care clinics, and a cessation of funding for the Rural Digital Opportunity Fund (RDOF) and the Alternative Connect America Model (ACAM).