Universal Service Fund is an "Out of Control" Slush Fund

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For Summary of USF

Click for Main Page on Universal Service

In the next few weeks, New Networks Institute and Teletruth will be releasing a report on Universal Service. Here's some information and links about Universal Service.

Report by the Congressional Budget Office on Universal Service. A report outlines the fund and claims it will need more money in the future. It does not call for an investigation into current excesses. To read this Report

Some Details About the Universal Service Fund

QUESTION: What is the USF?

According to the FCC:

"On February 8, 1996 President Clinton signed the Telecommunications Act of 1996. This law represents the first comprehensive revision of the USA's communications laws in more than 60 years. The universal service section of this law, Section 254, will help schools and libraries obtain access to state of the art services and technologies at discounted rates. The FCC, through its decision-making-process, shapes the policy that will bring about this increase in access to technology."

The Universal Service Fund (USF) is an incredibly large fund that is supposed to fund a number of areas. These include:

• ·High Cost Support Mechanism provides support to telephone companies that serve high cost areas, thereby making phone service affordable for the residents of these regions.
• Low Income Support Mechanism assists low-income customers by helping to pay for monthly telephone charges as well as connection charges to initiate service.
• Rural Health Care Support Mechanism allows rural health care providers to pay rates for telecommunications services similar to those of their urban counterparts, making telehealth services affordable.
• Schools and Libraries Support Mechanism, popularly know as the "E-Rate," provides telecommunication services (e.g., local and long-distance calling, high-speed lines), Internet access, and internal connections (the equipment to deliver these services).

For more general information about the Universal Service from the FCC see weblinks:

http://www.fcc.gov/wcb/universal_service/proceeding.html

Question and Answer: http://ftp.fcc.gov/cgb/consumerfacts/universalservice.html

We would like to make it clear that we believe the funding of schools and libraries and other assistance programs are important, however, as we point out, there have been a series of recent reports that have come out that clearly show deficiencies worthy of investigation.

QUESTION: How is it applied? A Large Sum of Money for Customers

In the first quarter of 2005, the USF charge was 11.1% and is supposed to be applied to only long distance and international calling This includes wireless and wireline services, as well as DSL. The contribution factor for the first quarter of 2004 was 8.7%. The discussion of the calculations can also be found at weblink:. http://www.fcc.gov/wcb/universal_service/quarter.html

QUESTION: How Much Money is Collected From Customers?

The largest part of this fund is NOT for wiring of schools and libraries, but to 'High-Cost Funds", which are corporate subsidies to the phone companies. The High Cost Fund represents over 60% of the total collected, doubling from $1.7 in 1999 to $3.4 billion in 2004. --- and growing.

QUESTION: What are the Multiple Problems with Universal Service Fund

Teletruth believes that there are so many things wrong with this picture that an independent investigation must ultimately be initiated. According to an article in Government Technology, a report by Center for Public Integrity and another report to Congress by the FCC Inspector General, the system is riddled with fraud and is 'out of control'.

"A Center for Public Integrity investigation reveals the huge program, funded by everyone who pays a phone bill, is in financial disarray. A new report to Congress on the fund by the FCC Inspector General's office said the program, known as the E-Rate fund, is virtually out of control.

"It's not unfair to say we have found something wrong everywhere we have looked," said Tom Cline, an auditor in the FCC Inspector General's Office. "It appears to be both intentional and unintentional."

• To read the FCC Inspector General's Report, 2004, weblink:
• http://www.fcc.gov/oig/sar902.pdf
• See an article on the report.
• http://www.govtech.net/news/features/news_feature.phtml?docid=2003.01.14-37912
• The partial audit of the E -Rate, weblink: http://www.publici.org/dtaweb/report.asp?ReportID=494&L1=10&L2=10&L3=0&L4=0&L5=0
• Testiomy, FCC Inspector General, Subcommittee on Oversight and Investigations of the Committee on Energy and Commerce, U.S. House of Representatives on "Problems with the E-Rate Program: Waste, Fraud, and Abouse Concerns in the Wiring of Our Nation's Schools to the Internet" Statements, 1/6/2005 http://www.teletruth.org/docs/FCCattorneygeneralEratestatement.pdf
• General Accounting Office Report (GAO), "Greater Involvement Needed by FCC in the Management and Oversight of the E-Rate Program" February 2005 http://www.teletruth.org/docs/GAOonusfd05151.pdf
• FCC Inspector General Semi-Annual Report, for April 1-September 30, 2004, released January 2005 http://www.teletruth.org/docs/FCCInspectorGeneral112204.pdf
• Congressional Budget Office Report "Financing Universal Telephone Service", March 2005 http://www.teletruth.org/docs/CBOUSF03-28-Telephone.pdf
  

QUESTION: Who Gets the Money? 

These audits are i nothing compared to the unexplored problems of the High Cost Fund. How ridiculous does it get? A recent article in USA Today, dated November 16, 2004, explained just how out of whack the High Cost Fund is - paying rich companies more money than they deserve.

"The regional Bell phone giants are struggling. AT&T and MCI are on life support. But tiny XIT Rural Telephone Cooperative is humming along nicely.

"The utility, which serves 1,500 ranchers, farmers and others in the Texas Panhandle, fared so well last year that it doled out a fat dividend to its customers, who also own it: an average $375 - more than the average $206 each customer paid in local phone fees.

• "Meantime, the co-op took in $2.6 million in federal universal service revenue. That's what people across the USA pay, through an 8.9% fee on long-distance bills. It subsidizes service in rural areas, where it's far costlier to run wires. (emphasis added)

  (Ed. Note: that's $1,733 a rancher)

  "XIT also got $650,000 in state universal service fees and $2.9 million in access charges. Long-distance carriers pay access charges to connect their calls. Those, too, get passed on to consumers. Universal service and access fees help keep service affordable in rural areas so the entire USA can stay connected.

QUESTION: I hear there can be Double or Quadruple Taxation. Is that True?

To top this off, in California, and many other states, there are at least 4 other funds being currently collected that overlap the monies being collected by the Federal USF. Are they justified? The California taxes include:

• · Universal Lifeline
• · Teleconnect Fund
• · High Cost A
• · High Cost B

High Cost Fund B is directly returned to Verizon and SBC, and they are also compensated for offering Lifeline service.