NRRI 15-05 State USF

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Universal Service is a key component of both Federal and State communications policy. Its goal is to ensure that all citizens have access to robust, reliable communications services, including broadband connectivity, at affordable rates, with "reasonably comparable service" across the country. Federal Universal Service funds (FUSF) provide a baseline for ensuring that comparable service is available to both urban and rural consumers. State funds both add to support provided by the Federal USF and are used to provide targeted support to address specific issues faced by each state's consumers.
NRRI's 2014 State USF review examines the way in which the states have addressed the question of universal service through state funds that supplement the four areas defined by the FCC--high cost support, low income support, support for schools and libraries (E-rate), and rural healthcare support. This paper examines changes to the state USF funds between 2012 and 2014 due to legislation, the FCC's USF Transformation Order, new rate benchmarks, and the move to include broadband in the Connect America Fund (CAF). The paper addresses the ways in which carriers and end users contribute to the funds, as well as the ways in which State funds are disbursed. This discussion provides data that may help State regulators and others respond to the FCC's current examination of the Federal USF contribution methodology, as well as manage their own State funds. The facts provided by the study will help the States make decisions on their funds, the FCC to understand the impacts of the ICC/USF Transformation Order on the states, and provide input on the way in which fund contributions may be structured in the future.
Forty-nine states and the District of Columbia responded to the NRRI 2014 survey.1 Only one state, Hawaii, did not respond.
The states have multiple funds to support multiple universal service obligations. For simplicity, NRRI uses the term State USF in this study to refer to all of these funds, including access restructuring funds (Intrastate Access Support or IAS), Lifeline funds, Telecommunications Relay Service (TRS), accessible telecommunications equipment (TEP) funds to provide specialized customer premises equipment to the hearing and visually impaired, and other funds established by state law.
In all, 45 states provide some form of State universal service support in addition to the Federal funds. Six states, Alabama, Florida, Massachusetts, New Jersey, Tennessee, and Virginia, have no State funds. Although it has no fund, Florida requires all carriers to provide
1 For simplicity, we refer to the District of Columbia as a state throughout this report.
Lifeline service. Massachusetts has no State fund but provides broadband support through a State grant program.
State USF support includes high cost support (22 states), funds for broadband access for schools and libraries (5 states), funding for Lifeline (17 states), and dedicated broadband funding (5 states). The majority of states direct USF contributions to specific funds. Two states, Texas and Washington, use a different methodology. Texas collects its USF as a single lump sum, which is then disbursed by the Commission to each state fund based on need. Washington funds universal service through the State's General Fund and then directs it to specific funds.
The largest proportion of SUSF funding (both in the number of states with a fund and the dollar value of that fund) is directed to supporting carriers that provide service in high cost or remote areas. Nearly half of the states with funds (22) provide high cost support. State high cost funds provide financial support for providers offering service in high cost and remote areas. Changes to the high cost funds over the study period, including the reduction or elimination of funding in areas served by competitive suppliers, have reduced the size of the fund in some cases or redirected monies to other uses in other cases.
Three states have Intrastate Access Restructuring Support (IAS) funds specifically designed to mitigate the effects of access charge reductions on carriers. For example, Michigan's fund is designed specifically to mitigate the effects of bringing intrastate access charges into alignment with interstate access charges on rural carriers. Where the states support IAS reform but do not designate a separate fund, we include their value in the high cost fund.
The State Universal Service funds grew just under 10% over the study period, from $1,354,782,370 in 2012 to $1,484,569, 879 in 2014. The growth in the funds was largely driven by significant increases in broadband and E-Rate funding in California and high cost growth in Illinois. The growth of State USF funds was tempered by reductions in Lifeline support and IAS funding, both driven by changes in federal regulation. State Lifeline funding decreased over the study period, as a result of both reductions in State support levels and more stringent eligibility requirements, including the elimination of duplicate registrations. One state, Wyoming, eliminated its State Lifeline program at the end of the study period. Additional reductions in Lifeline funding will occur over the next few years, as more states limit the amount of support they provide above the Federal benefit.
Contributors to the State USF vary by state and often by fund. All 50 of the states that responded to the NRRI survey assess wireline carriers, including CLECs. More than half of the states (32) assess intrastate long distance carriers (IXCs). Over half of the respondents (28) assess wireless providers. Seventeen states assess intrastate voice service provided by cable companies, while 13 states also assess interconnected VoIP providers.2 Eight states assess end
2 For the purposes of this paper, we categorize voice service provided by cable companies separately from other interconnected voice services, such as those provided by Vonage or Skype. AT&T's U-Verse service and Verizon's FiOS service are also included in the interconnected VoIP category.
users. Twelve states assess paging companies. In some states, cable and interconnected VoIP providers contribute voluntarily. Voluntary contributors include one VoIP provider in New York and one cable company in Utah, as well as some VoIP providers in Oregon. Unlike the Federal fund, which assesses providers a flat rate adjusted on a quarterly basis, collection by States differs depending on the fund to be supported. This allows the states to hone their funding requirements more specifically and to test out different contribution and funding methodologies.
The State Fund Overview table summarizes the findings of the 2014 NRRI Universal Service Survey.
State Universal Service programs are a significant tool for meeting the important policy goal of ensuring access to telecommunications for all citizens, regardless of where they live or their financial status. Continuing study and review of information on how various states meet this goal will remain an important public utility commission activity, now and in the future.