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The FCC Finally Looks at the USF
A decade of fraud and billions in misdirected funds later...
by Karl Bode 12:51PM Thursday Jun 16 2005
A significant portion of your monthly DSL and landline bill goes to the Universal Service Fund (USF). Critics across ideologies have long charged the system is corrupt, dysfunctional, poorly managed, and/or a slush fund for the bells. After years of debate, the FCC has announced they'll finally take a look.

The USF was created as part of the 1996 Telecom Act, with the intention of subsidizing affordable telecom services to the nation's less connected schools and communities. The act declared that providers of telecommunications services should contribute to the fund in an "equitable and nondiscriminatory manner".

When the FCC later ruled cable was an "information service" and largely exempt from contributing, that idea was seemingly thrown out the window. The ruling fueled legitimate complaints from the bells, and forged the Brand X court case, which challenges that ruling and should be decided on by the Supreme Court this month.

Even if there were equal contribution, the fund is so poorly managed, nobody knows where the money goes once it leaves your pocket. The system is plagued with little documentation, and even less FCC oversight.

Bell critic Bruce Kushnick complains that lack of oversight has allowed the USF to become a massive slush fund for the telecom industry, where money goes in - but nobody knows (or cares) where it comes out. Kushnick claims that roughly 60% of the total collected goes right back to the bells as profit; he's long championed a complete USF audit.

Lets assume - for the sake of argument - the money leaves your wallet, works its way through the Bell coffers untouched, and winds up where it's supposed to.

Forty percent of USF fees go toward funding the E-Rate program, which is supposed to wire schools with broadband. The program instead has been exposed as a poster-child for fraud and waste (see Christian Science Monitor).

A recent study by the GAO slammed the FCC for mismanaging the multi-billion dollar E-rate program. Of particular concern was the complete lack of any monitoring system to ensure it works. Of 122 audits done over the past year, about a third revealed substantial violations. School officials in Puerto Rico spent $101 million to wire only nine schools. In other cases hardware was purchased, then mysteriously disappeared.

So a decade and billions in misdirected funds later, the FCC announces it's time to take a look at the USF (pdf). Good thinking. But, like Sean Connery in the Untouchables, are they willing to go all the way?

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Off The Air

Edison, NJ

1 edit

While we're looking at the USF....

Let's take a look at the FCC subscriber charge on regular phone bills. Can someone explain that one?

Pittsburgh, PA

Re: While we're looking at the USF....

The FCC can;


Karl Bode
News Guy

Re: While we're looking at the USF....

This is not a government charge or tax, and it does not end up in the government’s treasury.
It's telco revenue with a dressed up name. Doesn't go to the FCC at all.


Time for another Boston Tea Party

regardless of the outcome of any investigation or audit, the consumer will still be over taxed in one form or the other in order to pay for inefficient federal departments and bell lobbyists.

Land O Lakes, FL

So what!

Eliminate the USF and the Bells will simply increase their "regulatory cost recovery fee" to offset the income loss.

Until the legal speak and loopholes are closed no one will get a break.

Go Colts
Fort Wayne, IN

Re: So what!

Even once the legal speak and loopholes are closed, we the consumers aren't going to see smaller bills. The regular service price will just go up.
"What gives them the right to come in and do this?" she said. - Lady complaining that she was getting FIOS in her backyard.



1 recommendation

Re: So what!

But at least that's legitimate. I hate it when you call up a phone company for a quote, and it's invariably 30-50% lower than the actual bill.

Also, it would get rid of the various $40/month unlimited service plans that actually cost $75/month.

That way you could compare phone charges. I mean, I have to ask, why is there a $6 a month line fee when the company OWNS the lines? That is clearly actually part of the service charge, so instead of quoting $12/month basic local service, quote what it is $18/month...

Doesn't make the ads so good sounding though.

All around, I want a law that whatever you advertise a product for, that's the cash I *pay* when I walk out with it. Not + delevery, tax, surcharge, handling, etc...

Alabaster, AL

Simple solution

If we really want to fund this crap (e-rate etc.), get rid of the regressive USF altogether and fund it through general taxatioon.

Bridgeport, CT

And again they are wrong

Millions? billions? I'd be hard pressed to say it hasn't been TRILLIONS since the USF was stated Many many years ago.

The Fcc is going to have a bad taste in there mouth after this one.

I already have a Messiah.

Refunds on the way

if DSL subscribers catch a break.

Rock Guitar

Columbus, OH

Everyone Charges Different Amounts

What surprises me is that every telco provider charges different amounts on the USF. What's that about? Why does one charge twice the amount as another? I guess they can tack on however much they want (and keep or pay out whatever they can get away with). Doesn't seem right. It's time to end the USF fee altogether. What good is it?
Coloma, MI

We need an impartial person....

someone with an insider view of the telcos...a person with integrity beyond reproach to root out telco corruption...someone like U.S. Rep. Pete Sessions.

Carrollton, TX

1 recommendation

What happens if USF is revoked

I suspect that any real attempts to remove USF will be met by long drawn out legal battles. The end result (win or loose) will be an additional 'Cost Recovery' fee.

Milford, NH
·G4 Communications
·Fairpoint Commun..
·Hollis Hosting

Nice gesture, bad law

The USF debacle is a typical example of what happens when you try to merge social policy and tax law. One can argue whether the idea behind USF is good or bad, but what cannot be denied is that once implemented it created yet another layer of bureaucracy and has the FCC trying to split hairs as to which service falls under and which do not.

I say eliminate it and if we decide we need to fund broadband create a one time project to wire them up, and have it self destruct when done.


Nashua, NH

Re: Nice gesture, bad law

Oh Tom, you just dont understand. You see, us hampshireites are a rare lot in this political world where both sides are basically socialists. The socialist just dont understand what true freedom is and thus would never eliminate thier security blanket. Remember the socialist mantra...
The government is our friend
The government should redistribute the wealth
The government should run our lives

If it is broken, then you need to throw more money at it to fix it (department of education?) and not look for way to eliminate bureaucracy.

Oh no, the entitlement, socialist mentality is strongly rooted and outcome is sadly predictable.

You could never eliminate this tax, just only increase it



Re: Nice gesture, bad law

3 Libertarians.

The Dude abides.
San Luis Obispo, CA
said by tschmidt:

. . .

I say eliminate it and if we decide we need to fund broadband create a one time project to wire them up, and have it self destruct when done.
My god man, what kind of reasoning is that!? What would be done with all the bureaucrats with nothing to do or the politicians with no one to contribute to their campaigns? Think man, think!
Woe unto them that call evil good, and good evil; that put darkness for light, and light for darkness. . . Isa. 5:20

Yermo, CA

Weren't these funds supposed to be for

Weren't these funds supposed to be for establishing phone service in areas that the Bells have not wanted to serve?

I mean If the Bells charge this money and then refuse to put phone service in every little town that the Bells would otherwise skip, then Why doesn't the FCC use It's vast power and enforce Its rules?

They should be forced to serve anyone with phone service anywhere in their service area, Even If the Phone Company is kicking and screaming like 3 or 4 year olds.
Firefox forever!