Funding the USF isn?t an ?Internet tax?

The venerable Universal Service Fund, which provides financial help for primarily rural telephone providers and low-income households, has become a bit frayed. As voice telephone use declines, and the wires are used for broadband, the funding system has weakened.

According to FCC Chairman Julius Genachowski, "The contribution system we have in place is still largely the same as the one the FCC adopted 15 years ago... And due to massive changes in the marketplace, the system has recently begun to suffer from declines in the revenue of services required to contribute. The contribution base has declined by roughly 10% since 2008."

In 2011, the FCC created the Connect America Fund, which uses some $4.5 billion to help provide broadband to rural and other underserved communities. And, in spring of 2012, the FCC proposed redirecting some of the USF monies toward Connect America, and to restructure the rate system. Currently, phone subscribers pay a percentage of long distance call fees, and with those fees in decline, the FCC has proposed a number of remedies, including a flat rate on all connections. This change would require broadband providers - including the cable companies that dominate that market - to support USF. This reform makes sense, since broadband providers will now benefit from CAF support.

In response, the media watchdog group Free Press published an attack on the FCC proposals - which remain just proposals - as a dangerous tax on broadband, calling it a "corporate slush fund." Free Press cited two studies to prove that USF money was misdirected to the coffers of the rural telcos.

But Joan Engebretson, a writer for Telecompetitor, found Free Press' analysis overblown and the studies cited flawed and discounted. In the end, she said that their basic charge was false: it isn't a tax, and it's badly needed.

Engebretson wrote:

"The change in funding methodology is being considered because as long-distance revenues decline, it has become increasingly impractical to collect money from the service providers as a percentage of those revenues. And while it may have made sense to fund a voice-focused program by collecting money based on voice revenues, it doesn't make much sense to fund a broadband program in that manner."

Free Press isn't against the USF program; just against any possibility that the funding may come from broadband connected services. As an alternative, Free Press wants USF support to come from the general treasury.

But Engebretson noted, "The idea of raising Universal Service funding from general treasury revenues isn't necessarily a bad one. But as the author notes, that move would require action by Congress - and pragmatically that means it's unlikely to happen any time soon if ever."

CWA and Speed Matters agree that broadband build-out and preserving the USF are important. But by misleadingly characterizing USF reform as an "internet tax" and suggesting an unworkable alternative, Free Press seriously undermines efforts to bring affordable high-speed internet service to all Americans.

Genachowski re: Universal Service Contribution Methodology (FCC, Apr. 2012)

Op-ed: Taxing broadband--an idea whose time has not come (Ars Technica, Aug. 30, 2012)

Where the Free Press Got it Wrong on Broadband "Tax" (Sep. 4, 2012)