Your phone bill is paying for a decades-old government program that some call outdated

Straight Arrow / By

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When you pay your cellphone bill, there’s a good chance some of that money is helping someone else connect to the world. There’s also a chance it’s going somewhere intended to help someone but not fulfilling that goal.

It’s all part of the Federal Communications Commission’s Universal Service Fund (USF). At its inception, the program’s aspirational goal was to give people and institutions in more remote or even impoverished urban areas a level playing field in terms of access to then-fledgling internet technology.

In the decades since, technology has far outpaced the government programs, leading industry experts to question whether those recurring phone bill charges could be better spent.

Universal Service Fund

The USF got its start in the 1930s but became modernized in the famed Telecommunications Act of 1996 under former President Bill Clinton.

“The Universal Service Fund is a program of subsidies to support users that would not typically be served by market-driven broadband service providers,” Johannes Bauer, professor of media and information at Michigan State University, told Straight Arrow.

Starting the year after, the program essentially collects money from telecommunications providers across the country to help make sure all Americans have access to affordable phone and broadband service.

“At its most basic level, the idea is that we believe as a society that everybody should have some minimum access to communications technology,” Scott Wallsten, senior fellow at the Technology Policy Institute, told Straight Arrow.

That fund helps support four major programs.

The High-Cost Support program, now known as the Connect America Fund, provides funding to expand service in rural and hard-to-reach areas. Lifeline offers discounts to qualifying low-income households.

E-Rate helps schools and libraries afford internet access, and the Rural Health Care program supports connectivity for medical providers in underserved areas.

But where exactly does that money come from?

“The money is coming from fees that are levied on traditional telecommunication services such as phone services,” Bauer said.

Major telecommunication companies across the U.S. pay big into this fund, with roughly 30% of eligible revenue being used.

The biggest contributions come from the biggest companies with the most revenue, such as AT&T, Verizon, T-Mobile and more.

But where that money really comes from is the consumers.

“On your mobile phone bill, for example, there’s usually a line that says something like ‘universal service charge,’ and that’s what funds the program,” Wallsten said.

Issues

At its core, the Universal Service Fund is designed to ensure that every American has access to reliable phone and internet service, regardless of where they live or how much they earn.

But is that happening?

“It’s not effective at all,” Wallsten said. “You can argue that most of it is not necessary at all anymore.”

A lot has changed when it comes to telecommunications services over the past three decades, but the program hasn’t.

“What the lawmakers and the Federal Communications Commission did not anticipate is that the market would change very quickly,” Bauer said.

While experts agree this program remains necessary, they also agree it’s outdated and inefficient.

When this program first came to fruition, landline phones were the main form of communication across America.

Only about 20% of Americans had a cell phone.

The program still mainly relies on the shrinking pool of traditional telecommunications revenue instead of the more modern broadband services that make up most of today’s communication.

“The economics behind it have changed hugely since the time that the fund started,” Wallsten said.

The basis of this program was that there are areas too hard or too expensive to service with telecommunications.

That includes places in Alaska where Americans are subsidizing companies to service places where no one lives.

A good chunk of the money that goes into this program pays smaller telecommunications companies that service those remote areas like that remote part of Alaska.

That’s part of the high-cost program and where politics comes into play.

“They make sure that their representatives in Congress work for them to continue to receive this funding forever, and so it sort of sticks around forever and ever,” Wallsten said. “It’s impossible to reform. It’s impossible to get rid of.”

What’s next?

While there have been little changes over the last several decades, the Trump administration has pushed for reform.

The FCC has focused on tightening rules around some of the fund’s programs, particularly Lifeline. The agency has proposed changes that would prevent improper payments and increase verification of recipients.

The FCC has also launched a review of the E-rate program and whether it’s meeting goals and if changes are needed because schools have become increasingly connected since the Clinton administration.

“I’m actually encouraged to see that these initiatives are being taken,” Bauer said.

While the Trump administration has taken these steps, it’s unclear if major change will come.

While the FCC does oversee the program, it would take Congress to make any major changes.

That includes changing the services being supported, changing who pays into the fund and more.

“I just don’t see how they ever overcome congressional opposition to real change,” Wallsten said.

That’s despite the major changes in just the last few years on how Americans in remote places get their broadband or telephone access.

The thought that some of those places are too expensive is not necessarily true anymore, especially with the entry of space-based broadband.

“It costs exactly the same to provide service anywhere in the country from Starlink, and so there’s no such thing as a high-cost area,” Wallsten said. “And then also with fixed wireless from AT&T and T-Mobile and Verizon, that kind of penetrates further and further into rural areas.”

The USF is managed by the Universal Service Administrative Company (USAC).

That’s an independent, nonprofit corporation that was created at the same time as the fund.

“They spend over $200 million a year, and they just get more and more inefficient,” Wallsten said. “Nobody knows what they spend their money on. Nobody audits them.”

While experts agree this program desperately needs updating, they also agree that getting rid of it altogether would be a mistake.

“I wouldn’t generally be concerned about having a support program in the first place,” Bauer said. “Just has to be lean, efficient, and really serve the purpose of connecting the locations that have a difficult time being connected by market forces alone.”

In the meantime, Americans all over the country continue to pay into this fund.

Even though much of that money may not be going to places that actually help their countrymen.

“I think one would be concerned about it,” Bauer said.

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