The decline of landline phones is threatening a popular concept in the U.S.: the principle that all Americans should have access to life-saving communications networks when they need it.

The Federal Communications Commission through its Universal Service Fund supports programs that subsidize the cost of operating and utilizing services in areas and for individuals that might otherwise struggle to connect. But given the sharp decline in demand for landline phone service in recent decades, the revenue pool that has long supported the USF has shrunk. Now, there is disagreement about what to do to make up that shortfall.

The FCC has tried to cover it by increasing the contribution factor for the telecom providers that pay into the fund. Landline, wireless and interconnected voice over IP service providers all pay a contribution factor based on an assessment of their interstate and international end-user revenues. The contribution factor rose to 33.0% in the third quarter of 2022, up from 15.7% a decade earlier. To mitigate the need for higher assessments, the FCC now is mulling other ways to preserve the fund, including requiring contributions from broadband providers or possibly even edge providers such as streaming video services, digital advertising firms and cloud services companies.

Legal questions and a lack of consensus regarding potential solutions are likely to slow the progress of any of the reforms proposed to date. In the meantime, regulators, industry representatives and public interest groups all agree the current system is in dire need of an overhaul.

"There is no debate that the mechanism is badly broken, and reform is needed immediately to make it stable and sustainable for the long term. Incremental tweaks will not be sufficient; bold reform is needed," AT&T Inc. wrote in a letter submitted to the FCC.

Getting Big Tech to pitch in

AT&T is one of the providers in favor of a proposal that would require edge providers — including Amazon.com Inc., Alphabet Inc., Meta Platforms Inc. and Netflix Inc. — to contribute to the fund. Proponents of the idea say that since traditional voice subscriber numbers are shrinking, the money must begin coming from tech companies that benefit from universal broadband access underwritten by government initiatives.

Supporters of the proposal to assess edge providers include Republican FCC Commissioners Brendan Carr and Nathan Simington.

"Legislation has been introduced in both the House and Senate to require the FCC to study the demands on networks associated with the services offered by edge providers, with Senator Wicker stating that the FCC should consider the feasibility of assessing big tech as online platforms continue to dominate the internet landscape," Carr wrote.

Carr also acknowledged growing support globally for requiring Big Tech companies to contribute to supporting telecom networks and reducing the digital divide. The European Commission recently proposed a declaration on digital rights and principles that called for "developing adequate frameworks so that all market actors benefiting from the digital transformation assume their social responsibilities and make a fair and proportionate contribution to the costs of public goods, services and infrastructure."

Even if the proposal to require assessments on edge providers is not adopted, it is an example of the government's unwillingness to let Big Tech companies benefit financially without closer scrutiny from governing bodies, said New Street Research policy adviser Blair Levin.

"We think there are multiple political and legal obstacles to [the proposal], but the report provides evidence of another D.C. front in which Big Tech will likely have to devote some of its political capital to playing defense," Levin wrote.

One of the major obstacles is determining whether the FCC has the regulatory authority to require payments from edge providers. The commission notes in its report that to move forward on this proposal, it would need to conduct a rulemaking proceeding that analyzed whether it could apply the definition of "telecommunications" to edge providers. That is likely to be both a lengthy and contentious rulemaking process.

Assessing broadband

A faster solution would be to expand the USF contribution base to include broadband providers, according to INCOMPAS, a trade association representing internet, streaming, communications and technology companies.

"Evolving USF so that its revenue base of support includes broadband internet access services is an immediate, common-sense solution that provides a sustainable long-term solution for the program," said Angie Kronenberg, chief advocate and general counsel for INCOMPAS.

INCOMPAS and others who support this proposal argue that the FCC already has sufficient legal authority to assess revenues from broadband services. Thus, the contribution base could be shored up more quickly by assessing broadband providers than if the FCC sought to expand the base to include edge providers.

Opponents of this plan say it would effectively raise the cost of broadband service for consumers at a time when President Joe Biden's administration is trying to make broadband more affordable.

The FCC estimates that Americans on average pay $105.67 a month for an unlimited 100/20 Mbps broadband plan. A 3.4% to 3.8% USF contribution would increase that monthly bill by $3.59 to $4.02, respectively. A contribution factor between 5% to 17% would increase that broadband bill by $5.28 to $17.96 per month.

"Both the record and the Commission's report throw cold water on the idea that the FCC should just start assessing broadband Internet access service," said the FCC's Carr. A $17.96 per month price hike "could result in nearly ten million broadband customers forgoing Internet service altogether," Carr added.

Congress steps in

The third option would be for Congress to fund the USF through the regular congressional appropriations process. Verizon Communications Inc. supported this proposal in a letter to the FCC, pointing to the funding provided by Congress under the $14 billion Affordable Connectivity Program, or ACP, passed as part of the infrastructure act.

"Absent direct appropriations, support for the ACP or a similar successor program would require a substantially broader base of contributors than the current contribution system or a system based on broadband revenue," Verizon wrote.

Like its competitor AT&T, the telco also supports broadening the contribution base to include edge providers. Verizon recommended that Congress make clear that the FCC has "the authority to expand the universal service contributor base to include the most significant enterprises operating within the broader internet economy."

Those who oppose relying on congressional funds note that the appropriations process is unpredictable, arguing USF programs require stable support.

Amid the pandemic, Congress provided direct subsidies for internet service under the Emergency Broadband Benefit Program, or EBBP, a short-term predecessor to the Affordable Connectivity Program. Under the earlier program, qualifying households outside tribal lands could get a $50-per-month cut to their broadband bill. Under ACP, that figure dropped to $30 per month.

While EBBP was operational, the contribution factor for the USF actually declined briefly, dropping as low as 23.8% in the second quarter.

"If there is going to be more of a reliance on these direct expenditures authorized by Congress," said former FCC Commissioner Robert McDowell, "there's a legitimate question to ask ... what's the future of universal service?"