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How Does Universal Service Funding Work?

Information on the process of the Universal Service Fund (USF)

All telecommunications carriers that provide service internationally and between states pay contributions into the fund.

The Universal Service Administrative Company (USAC), the administrator of the USF, submits fund size and administrative cost projections for each quarter in accordance with Section 54.709 of the Federal Communications Commission's (FCC) rules.

The Fund size projections are due to the FCC 60 days before the beginning of the next quarter (e.g., approx. November 1 for first quarter, February 1 for second quarter, May 1 for third quarter, and August 1 for fourth quarter).

At the same time, USAC's Finance Department calculates Telecommunications Reporting Worksheet (Form 499) revenue projections based on the forms that are filed by all carriers each quarter. Carriers must file Form 499Q February 1, May 1, August 1, and November 1. Carriers file an annual Form 499A on April 1.

USAC collects quarterly interstate and international revenue information from carriers on the Quarterly Telecommunications Reporting Worksheet (Form 499-Q) four times each year and submits aggregate information on a quarterly basis to the FCC (March 1, June 1, September 1, and December 1). USAC also calculates and submits the expected contribution factor. Based on these filings, the FCC reviews the data and establishes the contribution factor for the upcoming quarter. Typically, the FCC releases the contribution factor for the quarter between the 2nd and 15th day of the month preceding the quarter (e.g., between Dec. 2 and Dec. 15 for the first quarter).

Using this information, carriers calculate the amounts they will owe for USF and build this factor into their billing systems if they choose to recoup this amount from their customers. At the beginning of the quarter to which the contribution factor applies, USAC bills all contributors for the amounts due based on the contribution factor. Typically, USAC sends the monthly invoices by the 22nd of the month. These invoices will change on a quarterly basis to reflect changes to the contribution factor, and revenues reported by the carrier.

The billed contributions are typically due from the carriers one month after they are billed. This allows USAC to have the money on hand before the first quarter disbursements are made at the end of February, March, and April for the first three months of the quarter (January, February, and March).

This is repeated for each quarter.

Who Pays for Universal Service?

All telecommunications carriers that provide service internationally and between states pay contributions into the Fund. USAC makes payments from this central fund to support the High Cost, Low Income, Rural Health Care, and Schools and Libraries programs.

Consumers may notice a "Universal Service" line item on their telephone bills. This occurs when a telephone company chooses to recover its contributions directly from its customers through a line-item charge on telephone bills. The FCC does not require this. Each company makes a business decision about whether to directly assess its customers to recover its Universal Service Fund costs.

http://www.usac.org/fund-administration/about/how-universal-service-fund-works.aspx