In its recently released Open Internet Order, the FCC congratulated itself on forbearing from the telecommunications requirement that  broadband Internet access services immediately begin contributing to the universal service Connect America Fund. This self-congratulation has become a habit.

For example, in a “fact” sheet that was published at the same time the Order was released, the Commission called it a myth that the Order would increase consumers’ broadband bills and/or raise taxes.  Moreover in speeches and interviews around the country, FCC Chairman Tom Wheeler has continually repeated this statement. But is it really true that the Open Internet Order will not raise universal service pass-through costs for consumers? Let’s look at the facts.

In the short term, the FCC is correct, broadband Internet access service providers will not be required to contribute to the Universal Service Fund. That is because, for now, the Commission will forbear from the first sentence of Section 254(d) of the 1996 Telecommunications Act, which states:

Section 254(d) – Every telecommunications carrier that provides interstate telecommunications services shall contribute, on an equitable and nondiscriminatory basis, to the specific, predictable, and sufficient mechanisms established by the Commission to preserve and advance universal service.

However, this forbearance is not due to Commission generosity. In fact, the Commission has admitted that it may be short lived, since the issue of whether broadband Internet access service providers must contribute to the Universal Service Fund is currently pending in a separate ongoing proceeding (FCC Docket 96-45). Not coincidentally, a recommendation from the Federal-State Joint Board on the universal service status of broadband Internet access service is due to the FCC on April 7, 2015. 

The Commission discussed this companion proceeding in the Open Internet Order:

[O]n[the] one hand, newly applying universal service contribution requirements on broadband Internet access service potentially could spread the base of contributions to the universal service fund, providing at least some benefit to customers of other services that contribute, and potentially also to the stability of the universal service fund through the broadening of the contribution base. We note, however, that the Commission has sought comment on a wide range of issues regarding how contributions should be assessed…We therefore conclude that limited forbearance is warranted at the present time in order to allow the Commission to consider the issues presented based on a full record in that docket (Open Internet Order, para. 489).

Moreover, there is ample evidence to suggest that the Commission’s review of the record in the universal service proceeding is just a formality and Chairman Wheeler has already decided that broadband Internet access service revenues will soon be a part of the universal service contribution base. As FCC Commissioner Ajit Pai stated in his dissent to the Open Internet Order:

[T]he agency’s preference is clear. The Order argues that taxing broadband “potentially could spread the base of contributions” and could add “to the stability of the universal service fund.” For those not familiar with this Beltway argot, let me translate: “Extending these taxes to broadband would make it easier to spend more without public oversight.” But using plain English hardly makes for a compelling public message.  We’ve seen this game played before. During reform of the E-Rate program in July 2014, the FCC secretly told lobbyists that it would raise USF taxes after the election to pay for the promises it was making. Sure enough, in December 2014, the agency did just that—increasing E-Rate spending (and with it telephone taxes) by $1.5 billion per year. The federal government is sure to tap this new revenue stream soon to spend more of consumers’ hard -earned dollars. Indeed, it’s been publicly reported that the FCC is itching to use the Universal Service Fund to extend the Lifeline program to broadband. That won’t come cheap. In order to provide discounted broadband service to millions of Americans, the FCC will have to find the money somewhere.  With this Order, that somewhere is your wallet. So when it comes to broadband, read my lips: More new taxes are coming. It’s just a matter of when Open Internet Order, p. 326).

It is also important to note, as Ad Hoc does in a March 31, ex parte presentation to the FCC, that the current fund for universal service has increased from $3.9 Billion in 1998 to $8.8 billion in 2014, while assessable revenues for the fund have fallen from $80 billion in 1998 to $64 billion in 2014. This has led to the Universal Service Fund quarterly contribution factor rising to 17.4 percent for the second quarter of 2015. 

Ad Hoc estimates that if there are no changes to the fund, the quarterly contribution factor will increase to nearly 20 percent by the end of 2015. However, if end user revenues from broadband Internet access services are included in the fund, the quarterly contribution factor would drop to between 4 and five percent. Thus, the inclusion of broadband Internet access revenues in the pool of contributions could be easily justified as a method to more fairly share the burden among contributors. 

Additionally, a lower contribution factor could more easily absorb additional USF fund increases at least from a public relations aspect. That is why on April 5, we should expect a recommendation from the Federal-State Joint board that broadband Internet access service providers should contribution to the fund, and the FCC to quickly vote 3-2 to make this recommendation the law of the land.

 By Andy Regitsky, CCMI