A report by the Competitive Enterprise Institute (CEI) has criticized the Universal Service Fund (USF) subsidies, urging Congress to dismantle the current system and adopt a market-based telecommunications policy. Titled “Universal Service Subsidies Have Failed: Why it’s time for Congress to act,” the report emerges as the Supreme Court prepares to rule on FCC v. Consumers’ Research, a case highlighting constitutional issues with universal service subsidies.
Solveig Singleton, an attorney and policy analyst, authored the report. She argues that despite any forthcoming Supreme Court decision, the Fifth Circuit’s ruling in Consumers’ Research v. FCC in July 2024 has already alerted policymakers to significant problems with Section 254 of the Telecommunications Act of 1996. The Fifth Circuit concluded that Section 254’s open-ended language and the Federal Communications Commission’s (FCC) delegation of power to a private entity, the Universal Service Administrative Company (USAC), resulted in unconstitutional taxation through USAC’s contribution charges.
“The current universal service subsidy regime is inherently flawed, creating inequities and distorting markets,” said Singleton. “It’s time for Congress to move beyond incremental reforms and instead adopt a market-centered communications policy that benefits taxpayers and consumers alike while restoring efficiency and accountability.”
The CEI report identifies several key issues with the existing universal service subsidy system:
Market Distortions: USF subsidies distort both market collection and distribution processes. Consumers are discouraged from using services priced artificially high due to USF taxes, while carriers face distorted incentives affecting decisions on market entry, investment, and competition. The report highlights that these programs often favor wireline over wireless technologies, breaching technological neutrality principles.
Lack of Accountability: The report criticizes universal service programs for lacking strong accountability measures, leading to questionable spending decisions bypassing traditional appropriations processes. This absence of oversight has resulted in billions of dollars in waste and fraud.
Singleton contends that minor reforms—such as funding subsidies through electromagnetic spectrum auction revenues or contributions from “edge providers” like streaming services—will not solve underlying issues of unfairness, market distortion, and wastefulness. Instead, she advocates for eliminating the subsidy regime established by Section 254 altogether.
The proposed alternative is a market-driven system ensuring access to advanced services at reasonable costs via technological neutrality principles and built-in accountability mechanisms. If necessary, subsidies should be targeted exclusively at low-income users through voucher programs funded by general tax revenues with stringent means-testing and accountability standards.
For more details, refer to Solveig Singleton’s report “Universal Service Subsidies Have Failed: Why it’s time for Congress to act.”