Congress must ensure more efficient and transparent broadband funding

Improved Internet connectivity can help reduce socioeconomic inequality at home and improve America’s global economic competitiveness abroad. Thanks to growing private investment, competition, and innovation, Americans’ Internet access will likely continue to improve without substantial intervention from Congress. However, U.S. lawmakers can take several steps to ensure that already allocated broadband funding is used effectively to promote connectivity while reducing long-term costs to American taxpayers.

First, given the recent authorization of funds through the American Rescue Plan and the Infrastructure Investment and Jobs Act, Congress should not provide additional funding without justification. The recent dramatic increase in federal broadband funding since the Covid-19 pandemic means that the Federal Communications Commission has more than enough capital expenditure resources to ensure universal broadband connectivity.

A 2017 Federal Communications Commission (FCC) report found it would cost approximately $40 billion in capital expenditures to ensure that broadband services reach 98 percent of households and small and medium-sized businesses. However, the FCC has already spent more than $43 billion since 2017.

Most recently, the American Rescue Plan provided $350 billion to states and counties to improve infrastructure, including broadband. Likewise, the Infrastructure Investment and Jobs Act allocated more than $60 billion for broadband investment.

Instead of providing even more financial assistance, Congress must ensure that federal, state, and local governments use the already allocated funding effectively, meet broadband connectivity goals, and minimize wasteful spending.

Second, Congress should direct the FCC to review which Universal Service Fund (USF) programs continue to serve their original intended purpose. For example, the Connect America Fund— the USF’s most expensive component with an annual budget of $4.5 billion—provides subsidies to Internet service providers (ISPs) for connectivity in rural, sparsely populated areas.

However, as noted, the Commission already has more than enough resources to achieve universal service without additional support through the high-cost program. Furthermore, as private-sector investment has expanded broadband investment in rural areas, the lack of affordability—rather than connectivity—now represents the most significant barrier to universal Internet access. Because of these two reasons, the high-cost program should be phased out in favor of a more targeted approach.

To that end, Congress should ask the FCC to examine which Universal Service Fund components have been effective and provide justifications for the continuation of any such programs. Accordingly, the Commission would need to provide a rationale for continuing certain USF programs, such as the E-Rate program for public schools and libraries.

Third, any remaining Universal Service Fund programs should be subject to congressional oversight. To that end, Congress should change the USF’s funding mechanism from the current surcharge to direct congressional appropriations. The Federal Communications Commission imposes the USF surcharge on telecommunications companies, which generally pass it on to consumers in their broadband bill. This fee comprised only 3 percent of the overall Internet bill in 1998, but it has steadily increased to 33.4 percent as of the second quarter of 2021—even though overall broadband subscription costs declined by 26 percent between 2008 and 2020.

The USF surcharge’s regressive nature means that consumers pay the same percentage regardless of their income level, undermining the program’s purpose of promoting Internet access for lower income households. Removing the Universal Service Fund surcharge will make broadband subscriptions more affordable at the point of purchase. Furthermore, appropriations can help Congress hold the FCC accountable for how funds are used. More specifically, Congressional appropriations will allow lawmakers to set a hard limit on the amount of USF assistance, encouraging more efficient usage of such funds.

To that end, Congress should consider annual reviews of different USF programs’ effectiveness at meeting their intended targets. Such reviews can enable evidence-based decision-making about which broadband programs should continue to be funded and how much funding should be allocated annually.

A comprehensive audit today will help ensure that taxpayer funding is used effectively in the future. To ensure fiscal transparency, Congress should also instruct the FCC to provide a detailed timeline of when and how it plans to use the existing broadband funding to establish Internet connectivity throughout the country.

In the long run, there is no substitute for market competition and innovation to expand Internet access. With that in mind, Congress and the FCC should reduce regulatory barriers to private broadband investment and promote competition between different ISPs, such as cable, fiber, and satellite. Creating a market-friendly regulatory environment is crucial to reducing broadband subscription prices and ensuring universal Internet access while lowering costs to taxpayers.