USF Contribution Factor Reaches a New High

The FCC today announced its proposed Universal Service Fund contribution factor for the upcoming quarter, 1Q 2010. The factor will rise almost two percent, to a new record high of 14.1% of end user telecommunications revenues. As it did earlier this year when the factor first exceeded 12%, the FCC declined to raise the threshold on the 88-12” rule for international carriers. Instead, the FCC repeated its statement that it will give a waiver to any carrier who demonstrates that (1) its revenue is less than 14% interstate AND (2) its resulting USF contribution is more than its interstate revenue.

The public notice states that the factor will take effect automatically unless the FCC releases an order modifying the rate. In the 12+ years of the USF, however, the FCC has never changed the proposed factor, and I don’t expect to see a change this time either. Effective January 1, telecommunications providers will be assessing USF contributions at 14.1% of end user telecom revenues.

It’s hard to believe that so many people were up in arms about a federal excise tax of 3% yet the USF factor continues to rise without any real change in the fund. Clearly, the current USF is unsustainable. It is looking more likely than not that 2010 will finally be the year that the Fund sees significant reform.