Congress's Infrastructure Bill Could Give the FCC an Upgrade | Opinion

Through fees included in their phone bills, American consumers pay billions each year to support Federal Communications Commission programs meant to bring internet connectivity and phone service to underserved areas. But there's growing bipartisan concern that the FCC's primary fund for these programs—the Universal Service Fund (USF)—is poorly managed and running out of money. As Congress debates a large infrastructure spending package, it's time to consider more intelligent ways to close the digital divide.

The USF is a mechanism by which interstate long-distance carriers are taxed to subsidize the expansion of telephone and broadband services to low-income households and high-cost areas. This fund costs American taxpayers an estimated $5 billion to $8 billion every year. This tax is a floating tax, which means it can increase or decrease based on the demand for telecommunication services like landlines.

Here's the problem: consumers are increasingly moving to internet-based alternatives that fall outside the scope of USF collections. This transition means that remaining consumers' phone bills will become more expensive if the fund continues to subsidize broadband services (a type of service from which the FCC cannot currently collect fees). Inevitably, mobile services carriers will see the most significant increase as they produce the only revenues left for the FCC to tax.

Moreover, the tax is regressive; rich and poor alike pay the same amount, and poorer customers are more likely to be charged. Lower-income households are generally more reliant on mobile services to make up for a lack of access to the internet services that are not subject to USF taxes (e.g., using mobile hotspots to compensate for lack of direct connectivity or Wi-Fi).

USF programs are also rife with fraud and wasteful spending that depletes the fund. For example, according to the FCC inspector general's own report, the USF's Lifeline program, which helps low-income customers with monthly telephone charges as well as connection charges, had improper payment rates of 21.93 percent in 2017, 18.47 percent in 2018 and 9.32 percent in 2019. Moreover, the FCC has wasted billions of dollars on "overbuilding"—allowing self-serving persons or entities to avail themselves of public funds or inefficiently spending resources to build in already served areas.

The bottom line is that the FCC must find other revenue sources to keep up with the increasing cost of USF programs, and ensure that those funds are used properly. USF's mismanagement and future are bipartisan issues.

In October, House Energy and Commerce Committee chair Frank Pallone (D-N.J.) commented, "the high-cost program has been woefully maintained, with basic governance structures either wholly missing or outdated," pointing to evidence from a nonpartisan Government Accountability Office report.

In February, Sen. Roger Wicker (R-Miss.), the Senate Commerce Committee ranking member, and Sen. John Thune (R-S.D.), wrote to the acting FCC chairwoman asking about the fund's viability. "The [FCC's] USF has played a pivotal role in expanding broadband access to more and more Americans," the senators wrote. "However, we are concerned about the USF's long-term sustainability as a mechanism to close the nation's digital divide."

So what should Congress do?

For one thing, Congress could transform USF funding into a static $8 billion line item (the high end of the current USF budget) in annual appropriations bills to ensure stability for the fund and its services. Doing so would pass on the cost of closing the digital divide from phone customers to American taxpayers and the Treasury, a broader and more stable source of funding. In addition, an annual appropriation may resolve many of the fund's current issues related to floating contribution rates. Hence, making USF a designated appropriation in the new infrastructure package would be a step toward making the fund sustainable.

Another option would be to expand the base of providers taxed to fund the USF. For example, Congress could extend the USF tax to the internet streaming companies that use a majority of the nation's bandwidth. New legislation could target companies that exceed an average national revenue of $100 billion per year and take up 5 percent or more of the national bandwidth. One report found that five companies (Netflix, Alphabet, Amazon, Disney and Microsoft) take up more than 75 percent of total network traffic. Moreover, these companies generated nearly $1 trillion in revenues in 2020 by leveraging broadband services. It would only take .009 percent of these revenues to cover the current cost of USF.

To combat fraud and waste, Congress can add provisions in its infrastructure bill or other legislation to have USF mirror other social welfare programs. Specifically, it could look to the U.S. Department of Agriculture's SNAP or food stamp program, particularly the use of EBT cards to assist low-income beneficiaries, to improve the efficiency and administration of USF's Lifeline Program. The FCC should still be the administrator of Lifeline, but Congress should permit the agency to provide a voucher-based system that gives direct aid to consumers instead of carriers. This approach would provide low-income consumers more choice to decide which services and providers best suit their needs.

These are just a few options for Congress to improve the USF and ensure that the Federal Communications Commission can continue to close the digital divide. But, whatever Congress decides, the USF's current course is unsustainable. American consumers who pay these taxes and the people who count on the FCC's programs for affordable internet and phone service can't wait much longer.

Joel Thayer focuses his law practice on telecommunications, regulatory and transactional matters, as well as privacy and cybersecurity issues. He has represented clients in front of myriad legal and regulatory fora, including the Federal Communications Commission, Federal Trade Commission and federal administrative agencies. Additionally, he has also represented amicus curiae before the United States Supreme Court and advised technology companies on the European Union's General Data Protection Regulation.

The views expressed in this article are the writer's own.