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Universal Service Fund: Background and Options for Reform

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The concept that all Americans should be able to afford access to the telecommunications network, commonly called the "universal service concept" can trace its origins back to the 1934 Communications Act. Since then, the preservation and advancement of universal service has been a basic tenet of federal communications policy, and Congress has historically played an active role in helping to preserve and advance universal service goals. The passage of the Telecommunications Act of 1996 (P.L.104-104) not only codified the universal service concept, but also led to the establishment, in 1997, of a federal Universal Service Fund (USF or Fund) to meet the universal service objectives and principles contained in the 1996 Act. According to Fund administrators, from 1998 through end of year 2005, $43.5 billion was distributed, or committed, by the USF, with all 50 states, the District of Columbia and all territories receiving some benefit.

The Federal Communications Commission (FCC) is required to ensure that there be "specific, predictable and sufficient...mechanisms to preserve and advance universal service." However, changes in telecommunications technology and the marketplace, while often leading to positive benefits for consumers and providers, have had a negative impact on the health and viability of the USF, as presently designed. These changes have led to a growing imbalance between the entities and revenue stream contributing to the fund and the growth in the entities and programs eligible to receive funding. The desire to expand access to broadband and address what some perceive as a "digital divide" has also placed focus on what role, if any, the USF should take to address this issue

There is a growing consensus among policy makers, including some in Congress, that significant action is needed not only to ensure the viability and stability of the USF, but also to address the numerous issues surrounding its appropriate role in a changing marketplace. How this concept should be defined, how these policies should be funded, who should receive the funding, and how to ensure proper management and oversight of the Fund are among the issues expected to frame the debate.

The current policy debate surrounding USF reform has focused on four major concerns: the scope of the program; who should contribute and what methodology should be used to fund the program; eligibility criteria for benefits; and concerns over possible program fraud, waste, and abuse. A separate and more narrowly focused issue, the impact of the Antideficiency Act (ADA) on the USF, has also become an issue of concern.

Legislative measures to address the reform, restructuring and expansion into broadband of the USF (S. 101, S. 711, H.R. 42) as well as those that address ADA compliance (H.R. 278, S. 609, S. 101) have been introduced in the 110th Congress.

This report will be updated as events warrant.