Universal Service Fund Contribution Proposals of the National Broadband Plan

March 16, 2010

On March 16, 2010, after a 13-month study, the Federal Communications Commission released to the public and Congress “Connecting America: The National Broadband Plan,” containing its policy recommendations for achieving national goals identified by Congress in 2009 legislation, including ensuring that every American has “access to broadband capability.”

As widely expected, the Plan acknowledges an “emerging consensus” that the universal service contribution base be expanded, notes the previous proposals that have been suggested, where contributions are based on numbers, connections, or bandwidth, and recognizes possible exemptions for broadband provided to residential customers.

Interestingly, the Plan observes that carriers increasingly sell assessable telecommunications services in bundles with exempt information services, and that they have an incentive to consider much of that revenue as information service. Currently, universal service funding comes from assessments on interstate and international end-user revenues from telecommunications services and interconnected VoIP services. Over the last decade, the revenue base for those contributions (i.e., telecommunications services) has remained flat even though the total revenues reported to the FCC by communications firms has grown over 28%. The Plan recommends adopting contribution rules that would eliminate this opportunity for “arbitrage,” especially as new products and services are developed, so that the FCC would not need to continuously update contribution regulations to catch up with technology and the marketplace. 

But the Plan stops short of specific recommendations on how to expand the contribution base, such as classifying broadband service as telecommunications. Instead, it appears the FCC will seek additional comment on reforming the contribution methodology and then adopt a new methodology during “Stage 2” of the three part USF reform process outlined in the Plan. (Please see our separate report on USF distribution issues.)

The Plan recognizes that the FCC must proceed with measured steps to assure that it advances the nation’s broadband goals. Accordingly, the Plan proposes to keep the overall size of the fund close to its current size, barring additional funding from Congress, while recognizing that the uncapped parts of USF may continue to grow due to factors outside the FCC’s control. The Plan also proposes that the FCC work to hold USF costs down through stronger management and oversight of the universal service program by providing new, efficient assessment and audit programs.

This is one of a series of reports by Bingham’s Telecom, Media, and Technology practice group focusing on specific aspects of the FCC’s National Broadband Plan. If you would like to receive our reports on other topics, or to consult with us about how the Plan and its implementing proceedings may affect your business, please contact:

Andrew D. Lipman, Partner, 202.373.6033

Tamar E. Finn, Partner, 202.373.6117

Douglas D. Orvis II, Partner, 202.373.6041

Or any other member of the Telecom, Media, & Technology Practice Group.

This article was originally published by Bingham McCutchen LLP.