Comments to the Federal Communications Commission on deregulatory priorities

A version of this public comment was submitted to the Federal Communications Commission on April 11, 2025.

On behalf of Reason Foundation, we respectfully submit these comments in response to the Federal Communications Commission’s (FCC’s) request for comment in the proceeding, In Re: Delete, Delete, Delete, published March 12, 2025.

Our comments address the following topics:

• Universal Service Fund inefficiencies and reform;
• The application of Title II to net neutrality and Section 230; and
• Digital discrimination provisions of the Infrastructure Investment and Jobs Act.

Universal Service Fund inefficiencies and reform

The Universal Service Fund (USF) was created to subsidize voice services for rural, low-income, and underserved areas, funded by a tax on voice services. However, in 2011, the FCC expanded the scope of “universal service” to include broadband data and created programs such as the Connect America Fund and Mobility Fund to help expand broadband access. The Commission declared broadband data as an essential utility for communication, education, healthcare, and economic participation. The FCC redefined “voice telephony services” to include Voice over Internet Protocol (VoIP) and required providers offering broadband to meet specific criteria to qualify for USF support. But all of this was still funded only by taxing voice services, as originally authorized by Congress.

These changes introduced several inefficiencies that have made the program less effective. First, adding broadband services significantly increased the program’s costs. The USF’s annual budget now exceeds $8 billion, with much of this allocated to broadband deployment subsidies under the High-Cost Program and E-Rate for schools and libraries. The “contribution fee” rate paid by telecom companies has risen dramatically, from 3% in 1998 to 36.6% in the second quarter of 2025. This dramatic increase has placed an undue financial burden on both providers and consumers, particularly those with lower incomes. Moreover, recent proposals to expand the USF revenue base to include revenue from broadband providers would increase household broadband bills by $5.25 to $17.96 per month, creating further financial strain for lower-income consumers who can ill afford it.

At the same time, telecommunications companies that provide voice services internationally are unfairly required to pay USF contributions for revenue earned outside the United States. Under the Limited International Revenue Exemption (LIRE) formula, companies with domestic interstate revenues of 12% or less of their total revenues pay the USF tax only on their domestic interstate revenue. But any company who puts serving America first with more than 12% of its total revenue from domestic interstate services must pay the current 36.6% fee on its total revenue—a huge tax cliff from 4.4% of total revenue to 36.6% of total revenue.

Administrative cost overruns have also become a significant problem within the USF, with administrative expenses ballooning significantly over time. In 2000, administrative costs were $43 million, but by 2022, they had surged to nearly $330 million—almost as much as the entire Rural Health Care Program budget ($500 million) and more than half of the Lifeline Program budget ($610 million). The Universal Service Administrative Company (USAC), which manages the fund, has faced criticism for failing to economize on overhead costs. The FCC mandates a budget floor of $4.5 billion annually for high-cost areas, requiring collection even if actual needs are lower. This rigid structure discourages cost optimization and diverts funds from more pressing priorities. The growing number of contractors receiving substantial fees from USAC further highlights the lack of cost discipline. These unchecked administrative expenses divert resources away from the program’s intended beneficiaries.

While the E-Rate program is meant to connect schools and libraries, it is riddled with inefficiency, fraud, and wasteful spending, including cases of unused equipment and inflated costs due to non-competitive bidding. Ambiguous rules and delays in funding approvals exacerbate these issues, while “gold plating” leads to unnecessary spending on underutilized technology. Additionally, the lack of performance metrics makes it difficult to assess whether funds are achieving their intended goals.

Similarly, lower-income households spend a larger share of their income on telecommunications services compared to wealthier households, making the fee disproportionately burdensome for them. Higher service costs caused by USF fees can also deter consumers from subscribing to telecommunications services or push them toward non-taxable alternatives such as FaceTime or Zoom. This shift has naturally reduced the taxable base for USF contributions, creating a cycle of rising fees as the FCC struggles to maintain funding levels. Additionally, companies that absorb USF costs instead of passing them onto consumers may scale back investments in network enhancements and new technologies, potentially limiting improvements in consumer access and satisfaction over time.

We suggest the following USF reforms:

• Reverse the 2011 decision that expanded the scope of “universal service,” thereby reverting to the original program Congress had enacted and intended.
• Eliminate the USF LIRE tax cliff that penalizes American companies that compete internationally by generalizing the waiver granted to Tata in 2021 to all companies subject to USF obligations. This would ensure that domestic interstate universal services are funded fairly by USF fees on companies’ domestic interstate revenues.
• Budget discipline must be imposed by introducing a cap for USF programs while eliminating counterproductive budget floors. This would encourage efficient spending and align funding with actual needs rather than arbitrary thresholds.
• Independent audits of USAC operations should be conducted to implement stricter cost controls and reduce administrative overhead.
• Embrace improved technologies that now make it possible to serve high-cost areas at lower costs, challenging the need for such subsidies. Today, wireless solutions such as low Earth orbit (LEO) satellite constellations can achieve similar results at lower costs.

Some have proposed expanding the USF tax base by making search engines and social media companies contribute to the fund. Proponents claim that because these companies benefit from publicly funded broadband, they ought to contribute to the fund. However, doing so would harm consumers, business owners, and innovation. It also ignores the reality that the vast majority of broadband infrastructure is entirely privately funded. As noted previously, the high contribution fees imposed on telecom providers divert funds that could have otherwise been invested in innovative technologies to improve service. Casting a wider net would simply distort and depress investment by a larger number of companies. Similarly, imposing new fees on services such as FaceTime or Zoom, if not borne by the companies themselves, would be passed down to consumers, and low-income consumers would disproportionately bear the burden.

Full Comments: Comments to the Federal Communications Commission on deregulatory priorities

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