Federal and State Universal Service Programs and Challenges to Funding

GAO-02-187: Published: Feb 4, 2002. Publicly Released: Feb 11, 2002.

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Peter F. Guerrero
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"Universal service" means providing residential customers with affordable, nationwide access to basic phone service. The Telecommunications Act of 1996 extended support for universal service to eligible schools, libraries, and rural health care providers. Universal service programs are generally funded by mandatory contributions from telecommunications companies. New technologies, however, are putting this funding source in jeopardy. The Federal Communications Commission (FCC) has issued many orders designed to implement the act's universal service reforms. The Universal Service Administration Company runs the day-to-day operations of federal universal service programs on FCC's behalf, although FCC retains responsibility for oversight and ensuring compliance with its rules. At the state level, public utility commissions generally regulate rates for local and long-distance phone service and implement universal service programs. Public utility commissions subsidize local phone service from the rates set for urban and business phone service and for "vertical" services, such as caller ID and call waiting. Although the use of digital technologies and internet protocol networks for communications has risen rapidly during the past decade, the providers of these services are not required to contribute to the universal service fund. As these new voice services gain in popularity, funding for universal service may begin to decline. Considerable debate has arisen over whether the current regulatory framework for funding universal service--which relies on interstate telecommunications revenue--should be revised in light of digital communications.

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