Draft of Universal Service Fund Reform Legislation Released


On November 6, 2009, Representatives Rick Boucher (D-VA) and Lee Terry (R-NE) of the House Energy and Commerce Communications Subcommittee released a discussion draft of the  Universal Service Reform Act of 2009 (“Draft Legislation”) – legislation intended to overhaul the Federal Universal Service Fund (“USF”).  According to a press release issued by Rep. Boucher, the measure will improve the [USF] and ensure its continued viability by broadening the base of contributions into the Fund and controlling distributions from the Fund, allowing use of the Fund for broadband deployment.

As noted by Rep. Boucher, the Draft Legislation focuses on three primary areas of reform, USF distributions, contributions to the USF, and increasing the Federal Communications Commission’s (“FCC”) accountability regarding the administration of the USF (see Overview of Draft Legislation; Text of Draft Legislation).  With respect to USF distributions, the Draft Legislation explicitly declares broadband to be a universal service, curbs USF distributions by mandating a competitive bidding process to determine the eligibility of wireless providers to receive USF support, and, in theory, caps the high-cost program at the current funding level.  The Draft Legislation would also change the fund distribution calculation methodology for the non-rural, high-cost portion of the fund from statewide averaging to wire center averaging and would provide for consistent treatment for certain price capped providers.

Regarding contributions to the USF, the Draft Legislation would greatly expand the base of USF contributions and require many new entities to contribute to the fund. Specifically, it would allow the FCC to assess contributions on 1) any entity that pays into the universal service fund under the current system; 2) any provider of a service that uses telephone numbers, internet protocol addresses or their functional equivalents to provide or enable real time voice communications and in which the voice component is the primary function (e.g., Voice over Internet Protocol (VoIP) providers); and 3) any provider that offers a network connection to the public (e.g., DSL, cable modem, WiMax and broadband over powerline providers).  The FCC would have the discretion to determine whether to use a contribution methodology based on revenues, on phone numbers, or a combination of the two.  Under the Draft Legislation, if the FCC opts for a revenues-based approach, it can assess contributions on revenues derived from the provision of not only interstate and foreign communications services but also intrastate service.

With regards to accountability, the Draft Legislation requires the FCC to establish outcome-oriented performance goals and measures for each universal service fund program and to report to Congress about progress toward meeting such goals.  In addition, the Draft Legislation mandates that any appeal of a Universal Service Administrative Company (USAC) finding related to an audit must be resolved by the FCC within six (6) months after the date of filing.

In addition to the three primary areas of reform outlined above, the Draft Legislation would reform several other miscellaneous matters.  For example, the Draft Legislation directs the FCC to complete a proceeding to reform intercarrier compensation within one year of the date of enactment.  The Draft Legislation also addresses the problem of traffic pumping by prohibiting access charge recovery when an entity that has a business, financial or contractual relationship with a local exchange carrier relating to switched access revenues from such services offers a free or below cost service, and it seeks to facilitate accurate intercarrier compensation by requiring carriers to identify all traffic which originates on their networks and requiring all intermediate carriers to pass through that identification.

On November 17, 2009, the House Subcommittee on Communications, Technology, and the Internet held a hearing to examine the Draft Legislation.  The hearing was well attended and the following witnesses appeared:

  • The Honorable Ray Baum, Chairman, NARUC Committee on Communications, State Chair, Federal State Joint Board on Universal Service, Commissioner, Oregon Public Utility Commission
  • Peter B. Davidson, Senior Vice President, Public Affairs, Policy, and Communications, Verizon
  • Eric B. Graham, Vice President of Government Relations, Cellular South, Inc.
  • Leslie Greer, Chief Executive Officer, DTC Communications
  • Joel Lubin, Vice President of Public Policy, AT&T Services, Inc.
  • Kyle E. McSlarrow, President and CEO, National Cable & Telecommunications Association
  • Catherine Moyer, Director Legal and Regulatory Affairs, Pioneer Communications
  • Karen S. Rheuban, M.D., Senior Associate Dean for CME and External Affairs Medical Director, Office of Telemedicine, University of Virginia
  • Michael Rhoda, Senior Vice President for Government Affairs, Windstream Communications, Inc.
  • Gregory Rosston, Deputy Director, Stanford Institute for Economic Policy Research


Clients who have any questions or concerns regarding the Draft Legislation, or who have questions about this Advisory, should contact Jonathan Marashlian at: jsm@commlawgroup.com or 703-714-1313.

ATTORNEY ADVERTISING DISCLAIMER: This information may be considered advertising in some jurisdictions under the applicable law and ethical rules. The determination of the need for legal services and the choice of a lawyer are extremely important decisions and should not be based solely upon advertisements or self-proclaimed expertise. No representation is made that the quality of the legal services to be performed is greater than the quality of legal services performed by other lawyers

Sign Up To Receive Our
Advisories and Compliance Alerts

Sign up for our email list to receive notifications regarding new advisories and news