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Economic development

Improved design and management of the universal service fund as it expands to support broadband could help avoid cost increases for consumers

Why Area Is Important

The policy that Americans should enjoy "universal" access to affordable communications services has existed since the 1930s. In 2009, the nation's Universal Service Fund (Fund), managed by the Federal Communications Commission (FCC), disbursed roughly $7.3 billion to subsidize telephone and other communications services through four programs. The High Cost program subsidizes companies serving rural and high-cost areas. The Low-Income, E-rate, and Rural Health Care programs subsidize telephone bills and communications services for low-income consumers, schools and libraries, and rural health care providers, respectively. The National Broadband Plan, released in March 2010 by an FCC task force, calls for modifying the Fund to support greater deployment of more expensive broadband technologies. Universal Service Fund programs are funded through mandatory payments from companies providing telecommunications services—payments usually passed along to consumers as a line item fee on their telephone bill. Fund disbursements have more than tripled since beginning in 1998. GAO has reported the need for improved management practices in each of the four programs.

What GAO Found

GAO has examined each of the Fund's programs and concluded that proposals to modify them to support greater deployment of more expensive broadband technologies without re-examining the purpose, design, and management of the programs could increase disbursements from the Fund and the costs borne by consumers. FCC's design of Fund programs, including the High Cost and Low-Income programs having no limits on disbursements, have allowed disbursements to grow significantly over time. For example, due to increased program participation, Low-Income support payments for 2010 are estimated to reach approximately $1.4 billion—a 36 percent single-year increase over 2009. In September 2010, FCC indexed the E-rate program's $2.25 billion annual funding cap to inflation, which will lead to increases in that program's expenditures. Using each program to support greater broadband deployment will further increase the upward pressure on spending.

Total Fiscal Year Disbursements from the Four Universal Service Fund Programs
Total Fiscal Year Disbursements from the Four Universal Service Fund Programs

In February 2005, GAO raised concerns with the unusual structure that FCC established for the Fund that has caused FCC to struggle over the years with identifying the fiscal and accountability requirements that apply to the Fund. These concerns included the extent to which FCC has delegated some functions to the Universal Service Administrative Company (USAC)—the not-for-profit corporation that FCC appointed as the permanent administrator of the Fund. In response to GAO's concerns that USAC was operating and disbursing funds under less explicit federal ties than many other federal programs, FCC established a memorandum of understanding with USAC in 2007. However, concerns about FCC's design and structure of the Fund remain, including the Fund being outside of Congress' annual appropriations oversight process.

In its management of the Fund, FCC has not undertaken a data-driven approach to overseeing the four programs. For example, GAO found in its November 2010 report on the Rural Health Care program that FCC never conducted a comprehensive needs assessment to learn how the program can best target the telecommunications needs of rural health care providers. Proper needs assessments are crucial to the effective design and assessment of programs. If FCC had obtained data through a needs assessment, it may have been able to articulate a clearer vision for the program, more accurately ascertain why some rural health care providers do not participate in the program, and better ensure that FCC's programmatic changes achieved the intended results. Using data-based assessments would supplement the information gained through FCC's regulatory procedures and enhance FCC's ability to manage Fund programs.

Finally, GAO has found that FCC lacks performance goals and measures for all four Fund programs. Results-oriented organizations establish a strong foundation for successful program management through setting performance goals to clearly define desired outcomes and developing performance measures that are linked to the program goals. GAO has recommended over the years that FCC establish performance goals and measures for all of the Universal Service Fund programs and FCC has generally agreed with these recommendations. However, FCC has made only partial progress toward implementing performance goals and measures in each of the four programs.

Actions Needed

The National Broadband Plan recommends shifting Universal Service Fund support from legacy voice technologies to supporting a broadband platform that enables many applications, including voice. However, two of the programs remain uncapped and FCC has not adequately addressed the Fund's continued growth. GAO's work illustrates the need for a broader rethinking of the vision, size, structure, and goals of the Universal Service Fund, coupled with management improvements by FCC that will address GAO's recommendations. For example, FCC conducting comprehensive needs assessments would be a good first step toward designing programs that properly target broadband needs. Establishing clear performance goals and measures for the programs will allow FCC to better determine the proper amount of funding for each program, target the funding to meet the needs of the intended beneficiaries, and conduct needed program evaluations. FCC and USAC have noted they will work together to respond to recent GAO recommendations regarding improving internal controls and other oversight mechanisms. Beyond GAO's previous recommendations, Congress may also wish to give the Fund increased attention since it falls outside of the annual appropriations process. These actions would help ensure stronger governmental accountability over the Fund in the future and help avoid continued cost increases for rate payers.

Framework for Analysis

This analysis is based on the work conducted for the products listed under the "Related GAO Products" tab, as well as a review of the March 2010 National Broadband Plan and FCC's recent proposed rulemakings and orders related to implementation of Universal Service Fund reform.

Area Contact

For additional information about this area, contact Mark Goldstein at (202) 512-2834 or goldsteinm@gao.gov.

Related GAO Products