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June 16, 2011 11:31 AM

The Insanity That Is The Universal Service Fund

Enough is enough: the Universal Service Fund (USF) is insane.

To those who haven't heard of the USF, you've most likely paid into it. It's essentially a tax on wireline telephone services that's used to subsidize the availability of telephone service in rural areas.

The big debate around USF today is how do we evolve the program to support increased availability and adoption of broadband in rural areas.

So why do I say that such a right-minded-sounding program is insane?

Let's break things down.

For starters, USF is collected from telecommunications providers as a percentage of their interstate end user revenues generated from delivering wireline, wireless, and VoIP telephone services.

Each year the USF Contribution Factor that determines how much each provider puts in increases, rising from roughly 5% to 15% over the last 15 years.

Each year telecommunications provider pass through this increased cost to their customers.

While USF isn't officially considered a tax, each year the government is taking more and more money from taxpayers and a greater and greater percentage of telephone revenue to subsidize rural telephone service.

So how much money have we, the American people, paid into USF over the last 12 years? More than $80 billion.

That's obviously a lot of money. So what are we getting for our dollars?

We've subsidized rural residential telephone service to the tune of more than $50 billion. We've put almost $30 billion into better connecting our schools and libraries, first with telephone and now increasingly with broadband services. And we've throw almost half a billion dollars into rural healthcare broadband networks.

Those are the numbers, but what's the reality of the impact of these investments?

Unfortunately, there are clear shortcomings across all of them.

We've been subsidizing the build out and maintenance of 20th century copper telephone networks during the first decade of the 21st century when the rest of the world's been investing in fiber.

Our subsidy system is so broken that some telephone providers are collecting more than $20,000 a year to deliver telephone service to one remote household.

A recent survey of schools and libraries that receive USF support through e-rate showed that more than 85% had inadequate access to broadband, either because there wasn't enough bandwidth available or it was too expensive to afford.

An incredible number of schools and libraries are still stuck with T1 lines that can only deliver 1.5Mbps per line and that can cost hundreds and even thousands of dollars a month.

And many of our rural healthcare pilot networks got built exactly the wrong way. Rather than leveraging existing network assets and building multi-purpose capacity that could be leveraged by other facets of society like education, these pilots built new single-purpose networks that can only be used for healthcare.

This brings us to the big debate of the day: how do we expand USF to cover broadband?

To start with, it's kind of embarrassing that we're just getting around to this today as a country. I mean, it's 2011. How can there be any question that we should be prioritizing broadband over telephone service? Especially since you can deliver telephone service through broadband!

Luckily, at least we're to the point where everyone agrees that this is obvious. What's not so obvious is how to go about actually making this transition.

Existing USF recipients say they won't be able to continue delivering critical telephone services to rural communities if they lose their subsidies. So most discussions involve a transitional period, where telephone subsidies will slowly be phased out.

Unfortunately this means even more time and dollars spent supporting 20th century networks when communities need 21st century infrastructure.

But to be honest, that's the least of my concerns. Instead, what makes the whole USF thing insane are two things.

One, the utter lack of self reflection and willingness to admit shortcomings.

The tenor of the USF debate is that while things could be better, that overall they're pretty good, and all we need to do is tweak a few things around the margins and turn the subsidy spigot from telephone to broadband.

Yet looking at the results, it's hard not to see USF as needing anything less than radical change. USF has spent the last decade and tens of billions of our dollars inefficiently subsidizing rural telephone service and inadequate community anchor broadband service, while countries like South Korea have spent the last decade investing in the 21st century infrastructure of fiber optic networks.

The second thing that really makes USF insane to me is the lack of attention put on how to change the economics of the broadband equation in America vs. continuing to subsidize the broken economics of our current situation.

As evidence of this, I point to the recently announced Broadband Affordability Act. It's an early legislative effort to start directly addressing how to evolve the USF to subsidize broadband services.

The reason I think it's insane as it's structured is that it continues down the road of simply subsidizing rural services. Our policymakers seem willing to use our tax dollars to subsidize the often bloated pricing of rural service providers.

What I want them to do instead is ask the question: how can we lower the cost of these services in the first place?

On the one hand the White House and Congress have shown an understanding of this as evidenced by the broadband stimulus program. A large focus of that was on building the middle mile networks that will allow last mile broadband providers to get access to cheaper bandwidth to the Internet, thereby allowing them to sell faster service at a better price to their customers.

Yet I can't help but wonder: why aren't we taking this approach with USF of making strategic investment with taxpayer dollars rather than continuing to subsidize a broken system?

Let's look at this another way. We've spent $80 billion of taxpayer dollars over the last decade plus. What do we have to show for it? A bunch of inadequate, overly expensive 20th century communications networks.

So what if we'd gone another route with that $80 billion? What if we'd invested it directly in building out infrastructure that could deliver dramatically better service at dramatically lower costs?

With that $80 billion, we could have wired every rural school, library, healthcare facility, and government building in the country with fiber.

We could have leveraged that fiber to blanket rural America with a wireless network.

And we could have used some of it as seed capital to help last mile deployers who are already connecting rural America to do so on even greater scales.

I'm not necessarily suggesting that that $80 billion is enough to address all of our rural fiber needs over the last decade. But it could've been a heckuva start that would've put us in the position where today we would be working on how to finish the build out of rural America, instead of being where we are trying to figure out how to get started.

The USF holds so much promise to be a vehicle for good for rural America. But we can't ignore the reality that to date it has not been realizing its full potential.

Those of us who believe in rural America and the promise of broadband and fiber need to make our voices heard. We must let our policymakers know that the status quo isn't good enough. That the evidence speaks for itself that USF has been underwhelming at best and a failure on many fronts.

Now as we begin to debate what to do with USF next, we need to shift attention to how do we build up our nation's 21st century communications infrastructure and away from how do we continue subsidizing the 20th century.

If we can't do that, then USF will continue its insanity, our tax dollars will continue to be squandered, and rural America will continue to suffer.

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