Why Providers’ USF Contribution Factor is Rising

Service providers are experiencing the effects of fewer contributors paying into the Universal Service Fund (USF).

The Universal Service Administrative Co. (USAC) said on Friday the contribution factor will change from 10.2 percent in the first quarter of 2008 to 11.3 percent in the second quarter.

Why? Because broadband providers no longer pitch in to the USF and more wireless carriers have permission to draw from the high-cost fund.

“The appetite for universal service funding appears insatiable, though the commission is tackling the seemingly impossible task of putting a balkanized and firmly entrenched federal fund on a diet,” said Andrew Isar, president of regulatory consulting firm Millar Isar Inc. “In the short-term, we can expect continued ‘funding creep,’ to the dismay of the industry and public. At some point in the not-too-distant future, the FCC will have to act, hopefully giving ‘contributors’ some relief, unless the anticipated appeals prevail.”

Service providers’ contributions are allocated among four groups: the schools and libraries program; rural health care; the high-cost fund; and low-income.

USAC expects to collect nearly $19 billion in end-user telecom revenue in the second quarter. If the FCC doesn’t object to USAC’s projected increase, the 11.3 percent contribution factor will take effect for the May-June period.

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