USF Contribution Factor Expected to Decline in Q1, Possibly Reducing Pressure for Change
Congress, and the FCC, may face reduced pressure to reform the USF with an expected drop in its contribution factor, but calls for change won’t go away, experts said Monday. The USF contribution factor is expected to decline from 38.1% in Q4 to 30.9% in Q1, as projected demand decreases, analyst Billy Jack Gregg said Saturday in an email. That’s based on new numbers from the Universal Service Administrative Co.
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Former FCC Commissioner Mike O’Rielly said the new projections mean that quick changes are less likely as Congress studies USF (see 2510150047). “It doesn’t take much to put USF reform on the back burner because it’s really hard work, needing dedicated experts and absolutely requiring distribution and administration reform, not just adjusting the tax on collections,” O’Rielly told us. The recent U.S. Supreme Court case upholding the legality of the USF (see 2507020049), difficulty legislating on the issue and a lower contribution factor “probably push the reform timeline out further.”
USF revenue projections are due at the beginning of December, at which time policymakers can more “accurately calculate the assessment factor” for Q1, Gregg wrote. Overall projected USF demand for Q1 is $1.8 billion, $311.9 million less than Q4, a decline of 14.5%, he said. That’s “the largest quarterly decline in demand in the history of the USF.”
The decrease is driven by reduced demand in the high-cost and Lifeline programs. Q1 high-cost demand is projected at $953.5 million, down $223.2 million from Q4, while the projected $58 million for Lifeline is down $185.7 million, Gregg said. The rural health program is expected to be flat at $181.1 million, and the schools and libraries program has a projected increase of $97 million, to $648.9 million.
Regardless of the size of the contribution factor, the push to reshape USF will remain, predicted Public Knowledge Senior Vice President Harold Feld. “I don't think we are going to see a drop in pressure, because even if the demand for the current program drops, there is substantial demand for an improved USF.” There are “competing visions” of what the high-cost fund should look like in the future, he said. “It isn't going to stay a deployment fund forever.”
Free State Foundation President Randolph May said in an email that public pressure to address the contribution factor wasn’t that strong “even at almost 40% … in large part because the tax is largely buried in consumers’ phone bills.” The lower factor may not make that much difference, he said. “The reality” is that demand for high-cost fund support “should continue to drop, and actually go away, as other programs like the Connect America [program] and BEAD subsidies replace them,” he said. “Congress should recognize this and get on with a total reimagining of what is needed for universal service -- which is, post-BEAD, a halt to further deployment subsidies, and reform of the Lifeline and Schools and Libraries funds.” The affordable connectivity program, with its vouchers, “provides a good model” for low-income support, he added.
The decrease in the contribution factor “is welcome news,” a USTelecom spokesperson emailed. “But to lock in these downward trends for the long term, we must move forward with meaningful, common-sense reform of universal service. We're all in to work with our partners in government to make this happen.”