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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 and 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 and basically set the shape of the modern communications industry due to the fact it 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 telephony technology to spread like wildfire over the last 15 years- the rise in flat-rate calling plans. 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 all of these telecom technologies were not only available, but that they were available 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, and considering the fact the government wanted these services to be reasonably and affordably priced for users, they weren’t about to pass these costs off to the disadvantaged individuals and communities set to benefit from them.

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 needed to be “equitable and non-discriminatory,” which 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 in the telecom industry has to contribute to the USF we do mean every company in the telecom industry. That means companies who provide long distance service, local service, international service, wireless service, and even those phone companies still focused on providing largely obsolete telecom services such as paging and payphones all contribute to the USF. In fact, the government has made so good on their promise to spread the financial 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 industry expert to notice there are some real big differences between each of these market segments and the services they provide. Wireless companies provider a different service than VoIP service providers who provider 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 really powerful trend in the telecom industry, one that wouldn’t hit full bloom until well after the Telecommunications Act of 1996 passed, one that now dominates the telecom industry and throws a big-old wrench in this now defunct, but still operative, fee.

And that big-old wrench is known as the flat-rate pricing plan.

To be continued…

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