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Access to basic telephone service has been a bedrock element of U.S. telecommunications policy from the beginning.  Today, this right of "universal service" is at stake as questions arise over the way funds have been spent to support the universal service program, fees for universal service keep growing, and new services, such as making calls over the Internet, begin to replace traditional telephone service.

What is the Universal Service Fund?  Is the money well-spent?

Universal service is defined as ensuring that basic telephone service is accessible and affordable to everyone in the country, whether low-income, disabled, or living in a costly-to-serve rural area.  Billions of dollars flow through state and federal universal service funds to help accomplish this goal.  However, many question whether the money has been used efficiently and effectively — and those concerns have been aggravated by recent cases of fraud and mismanagement.

Providers, consumers and policymakers agree the program needs to be reformed, but there is little consensus on what to do.  A September 2003 House Energy and Commerce Committee hearing explored these issues as the Committee heard some new ideas.

Although the nation's telecommunications needs have moved beyond plain old telephone service, the universal service program has changed little in response.  The fundamental goal of accessible and affordable service remains.  State and federal universal service programs must require companies receiving funds to be more accountable to the public for their expenditures.  But the universal service fund proposals made by the telecommunications industry shift more costs on to average phone customers, while doing nothing to make the programs more efficient and effective.

Increased Universal Service Charges

Currently, phone companies serving rural areas support their network costs partially though "access charges" paid by long-distance companies when rural customers make or receive long-distance calls.  NECA, short for the National Exchance Carrier Association, administers access charges and was created as a collective of local telephone companies. 

One industry proposal would phase out access charges and replace them with an increased fee on local phone bills. A monthly fee now capped at $6.50 could rise as high as $10.00. It is unclear whether consumers who move to wireless or the Internet for all their calls would also pay this fee.  The result will be a significant increase in monthly phone fees, and a significant cost for families who remain on the traditional phone network. In the end, the very program that has as its goal to keep phone rates affordable may end up pricing some consumers out of the market.

FCC's "VoIP" Ruling Threatens Universal Service Funds

State universal service programs are also at risk after a recent federal ruling which prohibits states from imposing universal service fees on "voice over Internet" phone service (VoIP), which allows consumers to make phone calls using a broadband Internet connection.  If a substantial number of customers shift from traditional to Internet phone service, state universal service funds will fall, and state regulators will have no choice but to increase phone rates for the remaining customers – many of whom don't have the means to afford VoIP and who cannot afford increased phone rates.

Universal Service Fund Explained

The federal Universal Service Fund (USF) is supported by surcharges on interstate and international phone service.  Telecommunications companies who provide long distance service are required to contribute a certain percentage (adjusted each quarter) of applicable revenue into the fund. Companies are allowed to collect their contributions from their customers, and most do so directly through a fee on consumer phone bills. The Federal Communications Commission's factsheet on the Universal Service Fund includes what every consumer should know about USF increases.

The goal of keeping phone rates affordable in costly to serve rural areas is also funded by what are called "access charges," which are fees paid to local phone companies for carrying long distance calls.

The federal Universal Service Fund supports the following programs:

  • Low Income: Discounted monthly service and connection charges to qualified households.  As the FCC explains, these "Lifeline" and "Link-up" programs are available from local phone companies.
  • High cost: Support to telephone companies that provide service in rural areas and other areas where the cost to provide service is high.  The Universal Service Administrative Company explains high cost service on their site.
  • Schools and Libraries: A program to help ensure classrooms and libraries have access to education resources accessible through the telecommunications network.  The FCC explains what benefits are available for education.
  • Rural Health Care: program to link rural areas to urban medical centers to provide access to advanced diagnostic services.  The Universal Service Administrative Company explains their rural health care services on their site.
  • Telecommunications Relay Services: allows speech and hearing impaired consumers to use the telephone network by translating audio text messages.  The FCC explains TRS, and links to recent rulemakings and other procedings on this issue.

State Universal Service Programs

Individual states also run their own universal fund programs. Typically, these programs supplement the federal programs, funding additional support in high cost rural areas, providing matching funds for the Lifeline program, and sometimes also funding state-specific programs that provide telecommunications services to schools, libraries, and hospitals. In many states, universal service funding also supports programs for disabled consumers, such as telecommunications relay service for the deaf and hearing impaired.