Mar 27, 2018

Over a century ago, AT&T’s Nathan Kingsbury penned a letter to the Woodrow Wilson Administration, agreeing to operate as a public utility providing high-quality telephone service to Americans regardless of their income or where they lived in exchange for the government’s abandonment of its antitrust case against AT&T. By accepting AT&T’s proposal and dropping its antitrust challenge, the federal government’s endorsement of the Kingsbury Commitment of 1913 marked the federal government’s first application of the concept of “universal service” to voice telephone service. Subsequently, universal service was enshrined as a core mandate of the Communications Act of 1934. In the succeeding decades, universal service policies evolved to connote the development of an infrastructure that provides telephone service to all consumers, including those in the most remote rural areas, at a reasonable price. The Telecom Act of 1996 expanded the goal of universal service to encompass access to high-speed Internet and gave rise to the federal universal fund.

Why the history lesson? Simply put, while the Fund’s four distribution mechanisms have been formed and/or reformed and modernized numerous times over two decades, the contribution mechanism that funds universal service has remained the same for nearly a century. Specifically, it funds universal service based on interstate and international telephone service revenues. Yet, traditional voice telephone service has been superseded by broadband as the focus of universal service support. As the FCC’s own website declares, “[t]oday, the FCC recognizes high-speed Internet as the 21st Century’s essential communications technology, and is working to make broadband as ubiquitous as voice…” In fact, the Fund now supports deployment of broadband-only service, and voice service is in the process of being phased out by the schools and libraries (E-rate) support mechanism.

Universal service funding needs continue to escalate to meet the demands of ubiquitously deploying and maintaining advanced networks capable of enabling all Americans to reap the benefits of high-speed Internet access affordably. But the interstate and international voice revenues on which universal service contributions are based continue to decline each quarter. This has led to two unpalatable and incongruous results: First, those who use the telephone network primarily to speak on the phone – disproportionately represented by our nation’s elderly and those in rural areas – are bearing the lion’s share of the burden to underwrite a Fund which is substantially focused on supporting broadband services. This burden now adds nearly 20 percent to monthly telephone bills. Second, the Fund does not have enough money to expand broadband service to the bulk of the 24 million Americans who still do not have access to Internet service meeting the FCC’s threshold for advanced networks.

The funding sources set up by this contribution paradigm are a mismatch for the infrastructure they are supporting and they are holding back the construction of next-generation networks. Opponents of expanding the universal service contribution base to broadband services immediately conjure the “taxing the Internet” bogeyman. Yet, for over two decades, it has been voice customers who have foot the bill for subsidizing deployment of broadband networks, which themselves have enabled the rise of an Internet-based economy and marketplace.

In 2018, as brick-and-mortar fixtures continue to disappear and Internet companies dominate lists of the country’s most profitable, it strains credulity to suggest that the Internet economy is still in need of paternalistic protection and an exemption from contributing to the public weal. In fact, expanding the Fund contribution base to encompass broadband companies who rely on the networks whose deployment is fostered by Fund distributions not only comes closer to aligning contribution burdens with distribution beneficiaries, it also helps these companies by facilitating broadband deployment to and adoption by millions of additional potential customers and other participants in the Internet economy.

The Kingsbury Commitment was a wise policy decision over a century ago. Unless and until the universal service contribution base evolves beyond voice telephone customers funding broadband deployment and adoption without any assistance from the businesses that wouldn’t flourish or even exist but for such deployment and adoption, the network will continue to resemble a 20th century endeavor, and will remain functionally unavailable to tens of millions of Americans.