What is the Universal Service Fund (USF)?

Whom does the USF serve?

Based on the idea of universal service, the direct beneficiaries of the USF are rural, low-income and geographically isolated communities, as well as tribal lands. Without USF subsidies, services such as basic wireless service, internet connectivity and high-speed connectivity are considerably more expensive and less accessible for these communities. This has several negative effects on these communities, including the following:

• Quality of life.
• Quality of education.
• Quality of healthcare.

How is the USF funded?

Monetary contributions from telecom providers fund the USF. The FCC requires all telecommunications service providers to contribute to the fund. Companies required to contribute include ISPs, phone companies, carriers and voice over Internet Protocol (VoIP) providers.

The FCC requires contributions to the USF as rates. These rates are a percentage of a company's interstate and international service end-user revenues. This percentage is then multiplied by a variable called the contribution factor -- a number set by the FCC. The FCC calculates and administers contribution factors quarterly.

Some service providers choose to pay for their required contributions by billing customers with an additional USF charge. This is a percentage of the customer's total phone or internet bill, itemized as a "Universal Service" fee.

The FCC doesn't require service providers to charge consumers for their USF contributions but allows it as an option. The FCC doesn't allow companies to collect more money in Universal Service fees from customers than they contribute to the fund. Furthermore, the FCC forbids service providers from collecting Universal Service fees from members of their Lifeline low-income support program.

The Universal Service Administration Company (USAC), a nonprofit organization, manages contributions to and distributions from the USF. USAC collects required contributions and sends the money to the proper recipients. USAC also works with the FCC to set the contribution factor for each quarter.

Components of the Universal Service Fund

The USAC -- which operates under the FCC's direction -- administers the following programs.

Connect America Fund

The Connect America Fund, also known as the high-cost program, makes modern telecommunications networks accessible and affordable for rural, isolated and high-cost areas. It provides subsidies to telecommunications carriers that provide broadband service for these communities.

Providing service to rural and isolated communities is less profitable than in densely populated areas. Telecommunications carriers pay similar operational costs, but there are fewer paying consumers in the same area to generate revenue. The Connect America Fund aims to prevent lesser profitability so telecommunications companies aren't deterred from providing service to these rural communities.

Lifeline

Lifeline, a low-income program, has existed since 1985 and subsidizes phone services for Americans below the poverty line. The program was first designed to ensure landline phones were in each household. In 2005, the program quickly expanded to focus on mobile phones.

As of 2016, the Lifeline program offers broadband internet connectivity. There is a one subsidy per household limit and it provides up to $9.25 per month for each member. Lifetime subsidizes this amount for broadband or bundled services. If the household wants voice-only services, it subsidizes $5.25. However, Native American communities on tribal lands can qualify for subsidies of up to $34.25 per household each month.

Previously, the Lifeline program helped with phone service installation fees. The Link Up program still helps with installation service fees on tribal lands.

Rural Health Care Program

The Rural Health Care Program provides subsidies and funding for telecommunications and broadband services to eligible healthcare providers that serve rural communities. One of its objectives is to help healthcare providers in rural communities receive telecommunications services at comparable rates to those in urban areas.

Another objective is to enable telehealth and telemedicine services via high-speed internet access. Video conferencing infrastructure and networks enable rural doctors and patients to regularly consult experts in distant cities for the best healthcare experience.

The Rural Health Care program consists of the following two components:

1. The Telecommunications Program, established in 1997, subsidizes telecommunications services for eligible healthcare providers. This program subsidizes the rate difference between urban and rural telecommunications, enabling eligible providers access to less expensive urban rates.
2. The Healthcare Connect Fund Program, established in 2012, provides a 65% discount for various communications-related expenses for eligible rural providers, such as digital service line (DSL), internet access, dark fiber, private carriage and business data services. This discount is also for eligible non-rural providers belonging to a consortium where 50% or more members are rural providers.

E-Rate

The E-Rate program, also known as the schools and libraries universal service support program, helps educational institutions get affordable access to broadband connectivity.

A variety of factors determine the levels of discount and financial support, ranging from 20% to 90%. Some of these factors include the following:

• Poverty level.
• Urban versus rural location.
• If the school is on tribal land.
• If the school services students with medical or behavioral issues, or other disabilities.

History of the Universal Service Fund

The history of the USF is intrinsically tied to the history of telecommunications. The following are some of the most important developments for universal service.

Communications Act of 1934

The idea of universal service was first introduced into U.S. legislation through the Communications Act of 1934, which created the FCC. The aim was to offer U.S. citizens "a rapid, efficient, Nation-wide, and world-wide wire and radio communication service with adequate facilities at reasonable charges."

Universal service originally focused on physical network infrastructure expansion, as well as pricing and quality regulation. This led the government to grant AT&T a natural monopoly throughout most of the country. In less populated areas where AT&T didn't offer service, small, locally owned companies did.

The first funding for Universal Service came from AT&T. Smaller service companies used AT&T's locally built infrastructures, and AT&T paid their access charges for long-distance calls. Only long-distance carriers that went through state borders were required to pay contributions, even after AT&T broke up in 1982.

Communications Act of 1996

Universal service remained relatively unchanged until the Communications Act of 1996. This act overhauled much of the previous plan by opening up competition in many communications network markets.

The Communications Act of 1996 also introduced guiding principles that eventually led to the development of the USF's individual programs. Furthermore, this act narrowed its definition of two things:

1. Which communications companies qualify to receive assistance from this program.
2. Which companies must contribute to the fund. This act expanded contribution and required all communications companies contribute finances.

The 1996 act created USAC to manage operations regarding the fund. It also created a Federal-State Joint Board on Universal Service, which included FCC and state utility commissioners, as well as consumer advocates.

Expanding to broadband

In March 2010, the FCC released the National Broadband Plan as directed by Congress. The plan aimed to ensure that every American has broadband access.

In February 2011, the FCC released a Notice of Proposed Rulemaking. This reform sought to achieve the following objectives:

• Modernize the USF programs for broadband service.
• Maintain fiscal responsibility while the USF shifted focus to broadband.
• Require accountability from supported companies.
• Create incentive-based policies to guide service providers.

In October 2011, the FCC implemented the USF/ICC (Intercarrier Compensation) Transformation Order. This order also replaced the older high-cost program with the Connect America Fund. It aimed to advance voice service quality, ensure universal availability and comparable rates across locations for voice and broadband and to minimize the financial burden of required USF contributions among both businesses and consumers.

In November 2024, the U.S. Supreme Court said it would review the constitutionality of the current USF funding mechanism governed by the FCC. This decision followed a July 2024 ruling by the 5th Circuit Court of Appeals that cited concerns over federal authority over the program.

Editor's note: This definition was updated in January 2025 to improve readability and include timeline information.