FCC to Improve USF Management but Still Congressional Reform Is Needed

The FCC voted last week to strengthen its management of the Universal Service Fund, including improving the FCC’s oversight of the Universal Service Administrative Company. Chairman Brendan Carr called this effort a “top-to-bottom review of all aspects of the USF by looking at how these programs are being administered.”

I welcome the FCC’s ambition here to review the fund that subsidizes telecommunications services across the country. Administrative improvements are commendable and help make for proactive, responsible regulators. But what the USF still really needs is comprehensive reform from Congress to fix deeper issues, something Congress has talked for years about doing.

Reflecting the USF’s deep issues is the out-of-control contribution factor – basically a tax – that funds the USF. Now, interstate and international telecom revenues are being taxed at 38.8% and likely will keep climbing until Congress acts.

The tax rate rose from 9.1% in the second quarter of 2003 to 38.8% in the third quarter of 2026. That’s correct – the USF tax rate more than quadrupled over the 23-year period from the earliest readily available data to the most recent data. And in the last five years alone, the tax rate rose from 31.8% in the third quarter of 2021 to 38.8% in the third quarter of 2026 – a 22% or 7-percentage-point increase.

 

Until Congress enacts major reform, the existing USF regulatory scheme requires the tax rate to keep climbing to sustain its level of funding. This pressure exists because the tax base – traditional interstate and international telecom revenues – that pays into the fund is shrinking as consumers rely more on services other than traditional telecom services to communicate. In September 2025 comments submitted to the Senate USF Working group, the Free State Foundation summarized this issue here.

Additionally, Free State Foundation scholars routinely discussed how the fund’s High Cost program is redundant and outdated. These days, (too many) overlapping federal subsidy programs support broadband deployment. And already deployed capable infrastructure has greatly reduced the number of areas with prohibitively high costs anyway.

A bicameral, bipartisan group of legislators created the Universal Service Fund Working Group in 2023 to reform the fund, largely to address the shrinking tax base. The group relaunched in 2025 after a hiatus and collected public comments in September 2025, including those from the Free State Foundation.

Since then, the working group has hit delays. In the most recent public update, Rep. Richard Hudson (R-NC), a member of the group, said the group aimed to introduce draft legislation for major reform in June 2026. And before that, he estimated May 2026, citing “tremendous progress.” But no draft bill has been introduced to date.

The telecommunications marketplace has changed so radically since the creation of the current USF’s regime that top-to-bottom reform is needed without further undue delay. Hopefully, Rep. Hudson’s estimates are close to becoming reality, and we will see legislation unveiled this year to help Americans access telecommunications in a more cost-efficient and cost-effective way that avoids waste and fraud.

Otherwise, the chart above will continue to show a sharp upward trend on the right-hand side.