USF and Flat-Rate Pricing Plan (Part 1)

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Federal legislation played a huge role in the formation of the country’s telecom industry. Today, new bills and acts passed by the U.S. Government continue to shape the present and future of our field. One of the biggest acts to pass over the last couple of decades was the Telecommunications Act of 1996. This act represented the first major overhaul of the U.S. telecom field in over 60 years. It basically set the shape of the modern communications industry. This was the first act to take the internet into consideration. Yet even though the Telecommunications Act of 1996 was prescient in some ways it failed to predict one of the biggest changes in the telecom market. Over the last 15 years, flat-rate calling plans spread all over the U.S. Nowhere is this oversight more apparent than the formation of the Universal Service Fund (USF).

What Does the USF Contribute To?

The idea behind the USF started with some great and high-minded goals set forth inside the Telecommunications Act of 1996. Within this act, the government basically said that everyone in the country should have access to really high-quality telecommunication technology, especially disadvantaged areas of the country such as low-income neighborhoods and rural communities. Furthermore, the government wanted to make sure libraries and schools and health care facilities all around the nation had access to top quality telecommunication technology. Finally, the government wanted to ensure the availability of telecom technologies at reasonable and affordable rates to every man, woman, and child in the U.S.

Sounds like a pretty good set of goals, right?

The only problem with wanting to spread universal high-quality telecom technology across the whole nation is a matter of cost. High-quality telecom equipment is expensive to buy, install and maintain. Since the government intended for these services to be affordable, passing these costs off to the disadvantaged communities set to benefit from them was going to be self-defeating.

To solve this payment problem the government decided all the players in the telecom industry itself needed to help shoulder the burden by paying into the Universal Service Fund, the USF. The government wanted to play fair so they decided these involuntary contributions would be “equitable and non-discriminatory”. This really just meant the feds wanted to make sure every telecom company paid their “fair” share towards reaching the Telecommunication Act’s noble goals.

How Do Telecom Companies Contribute to the USF?

When we say every phone company has to contribute to the USF we do mean every company in the industry. That means companies that provide long distance, local, international, wireless services. Let’s not forget companies still focused on providing largely obsolete telecom services such as paging and payphones. All of them contribute to the USF. In fact, the government in its infinite wisdom has made really good on their promise to spread the burden of providing universal service. They even mandate VoIP providers drop some of their funds in the communal pot.

Now, it doesn’t take a telecom expert to notice big differences between each of these market segments. Wireless companies provide a different service than VoIP service providers who provide a different service than the few remaining pager companies sticking around in the 21st century. In order to make sure the non-voluntary contributions each of these different companies make remain equitable the government decided to levy a tax on some form of revenue that they all share.

After some deliberation, the government decided to throw this tax on each provider’s interstate end-user revenue. This sounds reasonable at first. After all, every involved segment of the telecom industry produces interstate end-user revenue. But the government failed to spot a powerful trend in the industry. A trend that would become prevalent after the Telecommunications Act of 1996 passed.  A trend that throws a wrench in this now defunct, but still operative, fee.

We call it the flat-rate pricing plan.

To be continued…

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