Brace yourself. The Universal Service Fund (USF) fee is projected to hit another record high next quarter. Your enterprise could pay 14.7% toward the USF on top of what you spend on interstate and international telecom services in the second quarter. 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). Gregg correctly predicted the USF fee would be 14.1% for the first quarter of 2010. The hike to 14.7% would cost $147,000 in USF fees for an enterprise spending $1 million on interstate and international services, as opposed to the $141,000 it spends on USF fees with the current 14.1% contribution factor. The silver lining: Many hope that such astronomical growth in the USF fee will add to the momentum of USF reform efforts currently moving through Congress and the FCC [VR 11/19/09]. 14.7% Calculation Based on Demands for Funding
by USF-Supported Programs 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 to cover their costs of collecting and remitting USF contributions. 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 second-quarter 2010 expenses for the USF on Jan. 29. It expects demand for USF funding will hit an all-time high of $2.18 billion for the upcoming three months. That’s a nearly 16% 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 Administrative Company’s carrier revenue projections. Those projections are due March 2. The FCC traditionally announces the second-quarter USF contribution factor between March 5 and March 21. Expect the fee to be 14.7% if the Universal Service Administrative Company’s second-quarter carrier revenue estimates are similar to the $17.25 billion revenue projected for the first quarter, says Gregg, now principal of Billy Jack Gregg Universal Consulting, in Hurricane, W.V. First quarter carrier revenue increased modestly from the fourth quarter of 2009, when Gregg says service provider revenues hit an all-time low. The revenue declines caused by the recession seem to have bottomed out, so Gregg anticipates the revenue projection for the second quarter of 2010 will be roughly equivalent to the first quarter’s projection. But 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. High-Cost and Low-Income Support Stress Fund The Universal Service Administrative Company disbursed $7.29 billion in USF funding in 2009, according to its report filed with the FCC on Jan. 29. The bulk – $4.3 billion – of that went to support carriers that operate in regions where it costs more to provide phone service. The rest went to schools and libraries ($1.9 billion), low-income support ($1.0 billion) and rural health care support ($72 million). Supporting high-cost carriers will require another $1.178 billion in the upcoming quarter, and the high-cost sector is one of the drivers behind the increasing USF burden placed on enterprises, Gregg notes. Low-income subscriber support is another impetus for increasing USF fees. These programs will require $386.25 million in the second quarter of 2009, up 8% from $356 million in the first quarter. Gregg 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. Funding for schools and libraries ($560.50 million) and rural health care ($54.99 million) round out the Universal Service Administrative Company’s $2.18 billion second-quarter demand estimate. ( | 
