Get ready to pay a record 14.2% federal Universal Service Fund fee on your enterprise’s interstate and international phone bills in the first quarter of 2010. That’s according to calculations shared with Voice Report by Billy Jack Gregg, former board member of both the Federal-State Joint Board on Universal Service and the Universal Service Administrative Company, the nonprofit that administers the Universal Service Fund (USF). Take the anticipated fee hike into account when budgeting your enterprise’s 2010 telecom expenses. Gannett Company, for instance, would add roughly $28,500 to its annual $184,500 USF contribution if the fee increased to 14.2% from its current 12.3%, reports Dave Orth, director of voice and data communications for the McLean, Va.-based newspaper publisher. The silver lining: Such astronomical growth in the USF fee would add to the momentum of USF reform efforts, believes Randy Hayes, voice services manager at the University of Northern Iowa, in Cedar Falls. [See related article on upcoming legislation and FCC actions to reform universal service] The USF – established in its current form by the Telecommunications Act of 1996 – subsidizes phone service for schools, libraries, rural health care organizations and low-income subscribers. The money collected for most USF support mechanisms goes to carriers that provide those services, not to the organizations or subscribers directly. USF contributions also support “high-cost” carriers that provide service in rural areas where it is expensive to install and maintain phone networks. The USF fee actually is assessed on carrier revenues, but service providers are allowed to (and unfailingly do) pass the expense on to business and residential customers as a surcharge. Carriers also add extra fees of as much as 8% to cover their costs of collecting and remitting USF contributions, says telecom attorney Martha Buyer, of the Law Offices of Martha Buyer, in East Aurora, N.Y. Lower Carrier Revenue Would Raise USF Fee The USF fee fluctuates quarterly based on the Universal Service Administrative Company’s projection of demand and expenses for programs supported by the USF. The nonprofit filed its projected first-quarter 2010 expenses for the USF on Nov. 2. It expects demand for USF funding will hit an all-time high of $2.12 billion for the upcoming three months. That’s a nearly 13% increase from the projected $1.88 billion demand in the fourth quarter of 2009. The FCC also considers how much revenue carriers are expected to generate in the coming quarter when determining the contribution rate. The more carriers bill, the more money is eligible for the surcharge. The FCC will not announce the official USF fee percentage until after it can review the Universal Service Administration Company’s carrier revenue projections, FCC spokesman Mark Wigfield says. Those projections are due Dec. 2. The FCC traditionally announces the first-quarter USF contribution factor between Dec. 4 and Dec. 15. Expect the fee to be 14.2% if the Universal Service Administrative Company’s first-quarter carrier revenue estimates are similar to those for the fourth quarter of 2009, says Gregg, now principal of Billy Jack Gregg Universal Consulting, in Hurricane, W.V. The USF surcharge will be higher if carrier revenues drop, because the contribution base shrinks. Inversely, the fee will be lower if carrier revenues increase. Gregg anticipates the revenue projection for the first quarter of next year will be $17.20 billion to $17.50 billion, roughly equivalent to the $17.16 billion revenue projection for the fourth quarter of 2009. Fee per Subscriber Increases as Base Dwindles … All indicators point to a fund growing out of control. The amount paid by consumers into the USF has doubled since 2000, according to the results of an FCC task group study published Nov. 18. The USF fee rose past 11% only once from 2003 to the second quarter of 2007, when it jumped to 11.7%. Since then, the fee has dipped below 11% only twice. [See chart of historical USF rates] The fee is 12.3% for the fourth quarter of 2009. The reason: As consumers move their voice minutes off traditional landlines, there are fewer subscribers to bear the brunt of the fund contributions, notes Andy Regitsky, president of Regitsky & Associates, a consulting firm in Reston, Va., that provides regulatory policy expertise. … While Low-Income Support Stresses Fund Declining carrier revenues caused by the technology shift and the recession also increase carrier demand for USF support. Some programs’ funding is frozen and can’t expand, like school and library support (capped at $2.25 billion). High-cost carrier support was a crucial driver of fund growth thanks to a rule that granted CLECs identical funding to what ILECs received, Regitsky explains. The FCC capped high-cost support in May 2008 [VR 5/8/08]. But the demands for low-income support aren’t capped and are rising steeply, Gregg says. Low-income support grew nearly 40% to $823.6 million in 2007 from $589.4 million in 2001, according to Universal Service Administration Company filings with the FCC. The amount distributed for low-income support has increased every year since 2001, except for a slight dip in 2008. [See chart of growth in low-income disbursements] Low-income support is on track to keep growing: The USF distributed $461.25 million for low-income support in just the first half of 2009. Projected third- and fourth-quarter demand add another $525.40 million. Gregg annualized the $356.25 million first-quarter 2010 demand to estimate that low-income support will total $1.43 billion or more in 2010. He attributes the increased demand to the popularity of prepaid consumer cell phones. Providers like TracFone and Virgin Mobile offer cheap calling packages to low-income subscribers and draw subsidies from the USF’s low-income programs. ( | 
