Mike Romano: Technology’s evolved, competition has evolved, the mission of Universal Service has evolved. Broadband’s gotten more robust. There’s going to be change in this, and we’re all going to have to adapt to it as providers, as consumers, as policymakers, as other stakeholders. I guess I would say to everybody involved in this debate, stay nimble, stay flexible, stay open to pursuing and thinking about new ideas because I think that’s going to be critical as we try to push this across the finish line.
Jeff Johnston: That was Mike Romano, executive vice president for NTCA, about how we need to rethink how the USF program is funded given all the changes over the last 25 years.
Hi, I’m Jeff Johnston and welcome to the All Day Digital podcast where we talk to industry executives and thought leaders to get their perspective on a wide range of factors shaping the digital infrastructure market. This podcast is brought to you by CoBank’s Knowledge Exchange group.
Today we’re diving into one of the most important – but often overlooked – pieces of broadband policy: the Universal Service Fund, or USF. My guest is Mike Romano, who just came off a successful fall conference and brings deep expertise on this topic. In our conversation, Mike walks us through the history of USF, why it was created, how it supports rural broadband, and why the funding mechanism behind it is becoming increasingly unsustainable in today’s marketplace.
So, without any further ado, pitter patter let’s see what Mike has to say.
Mike, welcome back to the podcast. It’s a pleasure to have you on. How have you been?
Romano: Definitely great. Thank you for having me. We’re coming right out of our fall conference last week, even though it feels like weeks ago now, and right back into it in DC. It’s been a great whirlwind few weeks but looking forward to the conversation today. Thanks for having me.
Johnston: So glad you’re on. Hey, congratulations on a very successful fall conference. I thought it was outstanding. You guys always do a great job, and great content, and a lot of people, so well done.
Hey, let’s jump into it here, Mike. I wanted to talk about USF reform, Universal Service reform, contribution reform. I’m so excited to have you on to get into the details.
For our listeners, Mike, maybe just to kind of level set where we are. For those that aren’t as familiar with what USF is and why it was designed, and what it looks like, maybe you can just give our listeners a pretty high-level overview of what is USF.
Romano: Yes. Universal Service, it’s a century-plus-old policy. The policy was basically, the country is better when everybody’s connected and able to communicate with one another. Obviously, it started in the telephony era. There was a discussion over 100 years ago of how Ma Bell would interconnect with independent telephone companies. That was the starting point of Universal Service. It became more explicit when Congress first passed the Communications Act just under 100 years ago. Then, in 1996, it became more explicit and really codified as a policy in a set of programs under the Universal Service umbrella.
Again, the notion now, especially in today’s world, obviously, is we’re talking about broadband connectivity. Again, the country is better off as a whole if every American, no matter where they live, no matter what income they have, level they are. Every school, every library, hospital, rural healthcare facility, the country is better off as a whole if everybody’s connected. And Universal Service and the programs that follow from it are the initiatives that help to try to achieve that mission both initially and then as an ongoing matter.
Johnston: It’s designed to provide financial support, if I understand it correctly, to operators in rural parts of the country so that they’re able to, as you said, make sure that everybody is connected, correct?
Romano: Yes. I’ll focus in now a little bit more specifically, given that question on the high-cost funds. The high-cost portion of the Universal Service Fund, the goal of it is to make services available at reasonably comparable rates to what’s available in an urban area and at reasonably comparable quality. Again, in a broadband world, that means you want to have speeds that are relatively consistent with what you would see in urban areas and prices that are in that same ballpark as well.
The high-cost Universal Service Fund distributes funding to providers who are deploying networks in rural areas, both for the initial deployment of the networks, although we’ve seen grants also play a role in that, obviously, in more recent years, and then for the ongoing operation of those networks as well. It’s really both an availability and an affordability program in that regard to both get networks out there, keep them out there, and then keep services affordable over the top of them.
Johnston: I think that’s a really good point. It’s one thing to get help building a fiber network or a broadband network, but it’s a whole other equation of just ongoing operations of that network in these high-cost areas. Oftentimes, these networks don’t generate cash flow every month, but they need help to continue operations, and USF plays a role in that.
Romano: That’s right. I think one of the things that people often miss is that Universal Service, that word service. People think about it as the initial act of connecting people. Universal service, of course, it’s a prerequisite to achieving Universal Service to have the deployment of a network. That’s where high cost is an availability program. It helps make the business case for investment. Ultimately, you also need to think about that service piece of it. Again, is service going to be available and affordable in these areas, and can it keep pace over time with what’s available in urban areas?
That’s where it’s not just the act of getting people connected, it’s keeping them connected. What that therefore entails is both the initial investment, the capital expense associated with deploying a network to the extent it’s not covered by a grant. Again, it’s being done through loans from financial institutions or other private capital, and then the ongoing cost of operating that network as well. It’s both a capex and an opex solution or equation, if you will, as well.
Johnston: Okay, that’s great. Fantastic. I feel like we’ve laid the groundwork on what this program looks like. It’s got to be funded, right?
So where does the money currently come from, Mike, that helps fund the Universal Service program so that we can connect people in rural America?
Romano: For years, for decades, the way this was done was largely through implicit subsidies. What would happen is, because we had one big telecommunications network, the Ma Bell AT&T network, you had basically long-distance service subsidizing local service. You had urban users subsidizing rural users. It was a set of implicit subsidies in a system that didn’t have much competition, so you could do it through ratemaking.
What Congress looked at in 1996 is they went to open markets and they made explicit the mission of Universal Service and codified it. They said, “Boy, this isn’t going to work so well in a competitive marketplace because to try to regulate rates and set rates in a competitive marketplace to handle these subsidies just isn’t going to work.” They called for an explicit mechanism of contribution to the Universal Service programs, and that’s where we see things today. It really has not changed much in the last almost 30 years.
There is a system in place, a contribution mechanism that basically collects assessments from telecommunications service providers based upon, right now, the revenues they receive for selling telecommunications services and a handful of other services that incorporate telecommunications. Those are two different definitions in the law.
Who pays in today largely are cell phone providers, long-distance services to the extent they’re still out there, legacy telecommunications services, some portion of VoIP services pay in today, but all of this goes into this fund. You’ve got a fund, in many respects, that is designed for a 1996 or maybe early 2000s telecommunications marketplace, but is funding, in theory, the 21st-century connectivity that people are looking for today. There’s a real mismatch in how it’s paid for and then what it’s supporting.
Johnston: I think that’s a really important point you made, Mike. This program is almost 30 years old, but broadband networks, telecom networks, technology looks vastly different with new players today than it did 30 years ago. I think that’s a really important point, just speaking to the outdated nature, I guess, of this program, if you will. If this program is being funded by, let’s say, in part, telephone landline bills, if there’s fees associated or assessments associated to those bills, for years now, people have been disconnecting their landline telephone in favor of wireless. That mechanism feels like it’s broken. Yes?
Romano: Right. This is the thing. I think the principles, the structure, the basic construct that Congress enacted in 1996 is somewhat timeless. What hasn’t kept up is the execution, the implementation. The whole idea behind Universal Services, the entire country benefits. Instead of thinking which users and beneficiaries should be contributing into the mechanism based upon today’s uses of the network to help to basically foster access in rural areas, affordability, and things like that, we’ve gotten time locked in terms of the implementation of it.
You’re right, Jeff. As a result, what we see is, even as the fund itself, the Universal Service Fund, the amount of money it distributes on an inflation-adjusted basis really has not grown in the last 20 years. The contribution factor has shot up dramatically to just about almost 40% right now from low single digits, 15, 20 years ago, because the base is eroding. As you said, people are dropping their landline. You’ve got a smaller pool of revenues from which to collect the funds, a smaller pool of purchasers of those services from which to collect the funds that will then, in turn, be distributed through Universal Service.
It’s a higher percentage on each bill, therefore, that’s getting hit, assessed, for those who are remaining in those legacy services. In that regard, it’s really gone from what was intended to be an equitable distribution of responsibility for supporting Universal Service across all of the users and beneficiaries of the network to hitting a subset who are purchasing legacy services in a way that’s highly inequitable.
Johnston: Yes. That just feels-- I mean, a 40% contribution factor, that doesn’t seem sustainable. My guess is there’s probably bias to the upside as opposed to that number going down, right?
I think the idea of USF and ensuring folks in rural America have connectivity, I think the notion of doing that is sound, and we should continue to do it. I guess the question is, how do we adjust the funding mechanism going forward, or the implementation of it going forward, so that we have a sustainable architecture here? What are some of the things whether it’s folks in Congress or others that are advocating that are looking at this and saying, yes, this current structure just really isn’t sustainable.
Romano: In 2006, the FCC opened up a docket. Ten years after the Telecom Act of 1996, the FCC opened up a docket to look at how to reform the contribution methodology because it saw back then that this was not going to be sustainable. That docket is still open to 2025. Now, the issue is a little bit, the levers the FCC can pull are limited by what Congress designed in 1996 in terms of how they defined those terms I mentioned earlier, telecom services and telecommunications.
The FCC has certain levers it can pull, but it also has to be very careful about that, especially in an environment today where courts are not shy about basically looking at agencies where they thought they’ve overreached or overinterpreted a law. The FCC has to be mindful of that. The FCC still has some levers it can pull to assess certain groups and close certain loopholes or remove certain exemptions that it granted previously. Based upon prior precedent to, I think, assess a pretty wide swath of users and beneficiaries.
A lot of this is more about political will than practical capability. I think the FCC, you saw in a Future of Universal Service report that Congress called upon the FCC to submit about two, three years ago now. The FCC largely turned to Congress and said, “Hey, we would really appreciate it if you would give us direction on what you think we should do and additional authority that could help with executing upon that.” Since then, there’s been a discussion among a working group, the USF Working Group in Congress. It’s bipartisan, bicameral, House and Senate, both, about how to do this.
They started this work in 2023, and right around then, a court in the Fifth Circuit Court of Appeals issued a decision declaring the Universal Service Fund unconstitutional. That was one of the significant reasons the brakes then were put on, and that reform effort, that reform discussion came to a screeching halt. Because it’s one thing to talk about basically reform and reshuffling things, it’s another thing to talk about reshuffling deck chairs on a Titanic. If the thought was the fund was going to collapse as unconstitutional, that was going to require more fundamental changes than how do you restructure the contribution mechanism, which units or widgets you assess.
That stopped it. Now, the Congressional Working Group has started its work up again. Just recently, I saw a comment from industry stakeholders, what have you. We submitted comments. We were joined by 21 state associations that represent providers like us as well. It was great to have a big group effort there.
CoBank was a terrific ally submitting a brief with a number of other rural-focused stakeholders, the Working Group now, after the Supreme Court case, after the fund’s been found constitutional again, is turning back to the question of how should we reform this. It is early in that restart of the process, but our hope is that building upon everything that’s been talked about before, Congress can talk about different options. I’m sure we’ll get into that a little bit about what the different options are, but I think that process is just starting now.
Johnston: Correct me if I’m wrong, Mike, but it seems like one of the few things that Congress can agree on is rural broadband or the importance of rural broadband. Is there a reason to be optimistic that Congress can come together if it does require a change to the law to make sure that we put a structure in place that is sustainable?
Romano: I think that’s right. There’s going to have to be political trade-offs in who gets assessed. I’ll mention, for example, there’s a discussion of, well, broadband is effectively the supported service at this point, the connectivity that the Universal Service program is seeking to promote. Should broadband be contributing to it? It’s one of the biggest uses of the network, and obviously everybody benefits from broadband connectivity.
There’s been a debate about whether that would lead to suppression of adoption and retention of broadband. Now, I tend to think that broadband is relatively inelastic, and I’m not sure that anybody’s going to drop their gigabit-level broadband service because of a $1 assessment on the bottom of their bill, but there’s some discussion of that. Caring for that’s going to be an issue, and that’s often thrown as a political wedge into the debate.
Another group that people look at is assessing a lot of the big users of the network, so big tech. Streaming video providers, digital advertising, things like that, others in the digital ecosystem whose businesses benefit and depend upon robust connectivity, but don’t contribute into the fund much or certainly directly at all. Should they, too, be brought in? Then again, you run into the political headwinds of, well, now you’re talking about basically assessing some of the largest multinational corporations in the world, and what will they push back on?
There’s a lot of political headwinds to this, but you’re right, Jeff. At the end of the day, I think people’s view of the mission of Universal Service is incredibly important.
Johnston: It feels like it’s logical for me that the tech companies should be playing a role in this new architecture. What do you think their pushback would be? Is it just simply, look, I don’t want to pay for it because it’s just an extra cost that I haven’t ever had to pay for, and I don’t want to start it. That’s obvious, I guess. What other arguments would you see the tech companies making that would be pushing back on any legislation that would require them to help support the USF program?
Romano: I think a lot of it falls back on platitudes and bumper stickers to some degree, candidly. It’s, “oh my gosh, you’re going to stifle innovation”. Again, I’ll go back to the same thing I just said about broadband demand being elastic. I find not credible arguments that suddenly Meta is not going to be able to invest in AI because it has to contribute 0.02% or 0.4% of its revenues in connection or assessment to help pay for the Universal Service Fund on its advertising revenue. It’s far-fetched, to say the least.
You’re right, Jeff, at the end of the day, their services depend upon connectivity. I’ll just give you an example. I was just reading an article this morning. I think it was in The Washington Post or somewhere like that. There was a demonstration of the new Meta AI glasses, wearable AI technology, and they blamed the Wi-Fi in the facility they were having for the problems that Mark Zuckerberg was having on stage with his demo. Again, Wi-Fi is not internet, but when it’s delivered to a premise, it’s then distributed throughout the premise.
Again, connectivity is critical to what they do. If connectivity is not there, I’m not wearing my AI glasses all the time in places where there’s only Wi-Fi. You’re going to have to have robust wired and wireless networks, both of which are supported in places through the Universal Service Fund. Meta and other large tech companies are going to benefit. They do benefit today from that connectivity. Now, I can understand they don’t want to be the only ones bearing that. It shouldn’t just fall to only those entities, but they should be bearing their fair share, as FCC Chairman Carr has put it in the past.
What I hope will ultimately break through, is that if we can distribute the obligation far and wide enough so that all of the users and beneficiaries in the ecosystem are contributing into it should be more equitable, spread across a much larger base. Hopefully not imposing an unreasonable burden on any one group because the law says you shouldn’t do that.
Johnston: You make a good point with the Meta glasses because I think the reality is, is everything that goes over a wireless network eventually goes over a wired network. Then your point, too, you look at the billions of dollars that the hyperscalers are spending on AI. It’s nothing short of mind-blowing. I think it could be $400 billion this year. This USF contribution would be a drop in the bucket.
Well, look, Mike, this has been great. Before we wrap it up, I want to just give you an opportunity to share anything that we didn’t talk about or anything I didn’t ask that you think are pertinent to this. I recognize there’s still probably more questions than answers, and we have to wait to see how this all plays out. Certainly, any closing thoughts on where you see things going?
Romano: Well, I guess what I’d say is, I joked earlier that the FCC’s docket on this was 2006, and we’ve had several runs at this, and Congress has looked at this over time. Heck, there was a whole bunch of reform bills in 2008, 2009, looking at these questions. I do feel like this time is a little different, though, or not a little. I think this time is different. First of all, the rural broadband, I’ll be honest, 10 to 15 years ago, was a little bit of an afterthought. It was sort of, oh, DSL will be fine for you all. It’ll be great.
The national broadband planning to get 4 megabits to everybody by 2020 in rural areas, that view has changed. Rural broadband is seen as an essential piece of the puzzle for this nation’s productivity. That connectivity is critical. I feel like there’s an impetus to make sure that we do this right. I think that will help to be a catalyst for a change this time, for action this time. The one thing I would note, too, though, is that also with the BEAD program and other programs coming on, if you will, there’s going to be an argument we’re closing the digital divide when it comes to the initial connection of everybody.
I think now that’s going to be a reason to pivot to the question of, okay, we’ve gotten them connected. How do we keep them connected? I think that’s going to become an increasing focus. Folks, the last 15 years has been on, let’s make sure we get more networks out there, more networks out there. Understandably so, but that’s only a part of the problem to solve for. I think now we’ll see attention turn back to the, how do we keep people connected, that Universal Service mission again.
Then the last thing I’ll just note is that, and we’ve talked about this with our own membership, things aren’t going to look the same. Technology’s evolved, competition has evolved, the mission of Universal Service has evolved. Broadband’s gotten more robust. There’s going to be change in this, and we’re all going to have to adapt to it as providers, as consumers, as policymakers, as other stakeholders. I guess I would say to everybody involved in this debate, stay nimble, stay flexible, stay open to pursuing and thinking about new ideas because I think that’s going to be critical as we try to push this across the finish line.
Thank you so much, Mike. Always a pleasure chatting with you.
Romano: Well, thank you for having me. I really appreciate it. Always a pleasure to catch up with you in any form or fashion, and on this as well, for sure.
Johnston: A special thanks goes out to Mike for being on the podcast today. I thought Mike did a great job explaining how the Universal Service Fund has long helped connect rural America by supporting both the buildout and ongoing operations of broadband networks. But the program still relies on outdated funding tied to legacy phone services, leaving fewer customers paying a much higher share. Reform is needed, and while challenges remain, there’s growing recognition in Congress and industry that rural broadband is essential for the nation’s future. The focus now is not just connecting people but keeping them connected.
Hey thanks for joining me today and a special thanks to my CoBank associates Christina Pope and Tyler Herron because without them there wouldn’t be an All Day Digital podcast. Watch out for our next episode.
