Last week, I was privileged to participate in a panel discussion at the NARUC Summer Policy Summit. Titled “USF in the 21st Century: Where Do We Go From Here?,” the panel was moderated by Nebraska Commissioner Tim Schram and included representatives from the South Dakota Public Utilities Commission, NTCA—The Rural Broadband Association, and the Computer & Communications Industry Association. It was an informative discussion that left me with one key takeaway: The Universal Service Program needs revolutionary—not evolutionary—change, which can only be accomplished by Congress.
We began by discussing the Supreme Court’s Consumers’ Research decision, which I examined in greater depth here. For the telecommunications community, the takeaway was that the Universal Service Fund (USF) dodged a bullet when the Court rejected a constitutional challenge to its structure. While Justice Gorsuch’s dissent listed several other challenges one might make to the program, these are unlikely to gain much traction. The cynical view was that real USF reform was unlikely as long as it seemed the Court might invalidate the existing scheme. With the constitutional question settled, the spotlight now shifts to the political branches to make hard decisions that they have ducked far too long about this lingering 20th-century program.
Perhaps the most pressing concern is contribution reform. Under the Telecommunications Act of 1996, the Universal Service Fund’s various programs are paid for by a surcharge on interstate telecommunications—primarily telephone services. But the growth of fund programs, followed by steep declines in telecommunications revenue, has caused the surcharge to balloon to an unfathomable 36 percent for 3Q 2025. Parties have floated numerous proposals to expand the contribution base to include broadband service, various edge services, or digital advertising revenue. The panel discussed one such proposal, cloud services, which CCIA estimates could result in a $148 billion loss to GDP. But as former Federal Communications Commission Chair Jessica Rosenworcel explained to Congress, many of these potential solutions require congressional action, as the current statute defines the agency’s authority narrowly.
Fortunately, Congress relaunched the bipartisan Universal Service Fund Working Group earlier this month. The group, initially formed in 2023, was established to consider potential USF reforms. It expects to seek public comments soon “regarding the future outlook of the USF in the near and long terms.” This announcement coincides with a new Congressional Research Service report that provides an extensive overview of the fund and numerous suggestions for congressional action.
I remain convinced that the simplest and most elegant solution to contribution reform is simply to fund universal service through appropriations, placing it as a line item in the federal budget like most other assistance programs. This would bring much-needed transparency to the program, allowing more direct congressional oversight of a program that has often been criticized for fraud, waste, and abuse, and would eliminate the current regressive surcharge regime. This move would not create a new federal spending program but would instead simply reveal more clearly the cost of the existing program and spread that cost across the entire tax base. The primary objection appears to be fear about fund continuity: Like the late Affordable Connectivity Program, it could be adversely impacted by a congressional decision to eliminate funding. But this concern could be ameliorated by strategies such as multi-year appropriations to reduce the risk of sudden budget shocks.
But while contribution reform is perhaps the most pressing concern, it is hardly the only issue the working group should undertake. Senator Ted Cruz has argued that contribution reform should be considered alongside comprehensive review of the fund’s four substantive programs: Lifeline (which provides assistance to low-income families), the High-Cost Fund (a collection of programs to subsidize rural providers), E-Rate (which funds broadband service to schools and libraries), and the Rural Healthcare program. His proposal would not only “put Congress back in the driver’s seat” but also consider explicitly whether the fund’s current operations still further the public interest.
Cruz’s call for comprehensive reform is well taken. The current incarnation of the Universal Service Program was created in 1996, a time when only 50 percent of Americans had broadband access, and most of those accessed the Internet via dial-up. Lifeline subsidized landline telephone service. E-Rate was supposed to bring broadband to schools and libraries as community anchors so every town had at least some points of Internet access. The program itself was part of a bill whose primary focus was encouraging competition among local telephone companies.
For over 25 years, the Federal Communications Commission has steadily pounded square pegs into round holes, trying to modify this 1990s framework to fit modern needs. The time is long overdue for Congress to overhaul this antiquated regime and determine how the timeless goal of universal service is best accomplished in the 21st century.
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