TELECOMMUNICATIONS

FCC Should Improve the 

Accountability and 

Transparency of HighCost Program Funding

Report to Congressional Requesters

July 2014

GAO-14-587

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-14-587, a report to 

congressional requesters

July 2014

TELECOMMUNICATIONS

FCC Should Improve the Accountability and 

Transparency of High-Cost Program Funding

Why GAO Did This Study

The USF high-cost program targets

financial support to rural areas where 

the cost to provide telecommunications 

service can be more than three-times 

greater than the cost in urban areas. 

High-cost program support offsets 

telecommunications carriers’ costs and 

allows them to charge rural customers 

lower rates. In 2011, FCC issued the 

USF Transformation Order, whereby it 

adopted funding reforms so that the 

program could support both telephone 

and broadband service, and capped 

the program at $4.5 billion annually. 

GAO was asked to provide information 

on FCC’s reform efforts for the highcost program. This report examines (1) 

the extent to which FCC implemented 

the funding reforms adopted in the 

USF Transformation Order and 

stakeholders’ views on FCC’s efforts, 

(2) the extent to which FCC is 

collecting data to determine the 

effectiveness of these reforms, and (3) 

what changes, if any, states have 

made to their universal service funds 

since FCC adopted the reforms. GAO 

reviewed FCC orders, data collection 

forms, and other relevant documents; 

interviewed FCC officials and 

representatives of nine stakeholder 

associations; and surveyed utility 

commissions in all 50 states and the 

District of Columbia.

What GAO Recommends

FCC should demonstrate how highcost funds were used to improve 

broadband availability, service quality, 

and capacity, such as by conducting 

analyses of carrier data and reporting 

the information in an accessible

manner. In response, FCC concurred 

with GAO’s recommendation and 

intends to take action to address it.

What GAO Found

The Federal Communications Commission (FCC) has implemented four industrywide reforms and the initial phases of two carrier-specific reforms for the 

Universal Service Fund’s (USF) high-cost program. However, FCC has 

encountered delays implementing the subsequent phases and more complex 

carrier-specific funding reforms that require extensive cost modeling and

stakeholder input. For example, although FCC planned to fully implement the 

reform specific to large carriers by January 2013, FCC officials said it will not be 

implemented until the end of 2014. FCC officials cited their efforts to gather 

stakeholder input as the primary cause of delays. Some stakeholders told GAO 

that the delays did not affect them while small, rural carriers said the resulting 

uncertainty had decreased their investment. Overall, the stakeholder groups 

GAO contacted generally supported FCC’s reform efforts, but had concerns with 

aspects of the different reforms. For example, representatives of small, rural 

carriers stated that uncertainty about implementation of the reform affecting them

has resulted in their decreased investment in broadband infrastructure. 

While FCC collects and reports a range of data and information on high-cost

program funding, GAO identified gaps in FCC’s data analysis and reporting that 

limit FCC’s ability to evaluate the program, demonstrate its effectiveness, and 

help ensure that the data collected will inform current and future reforms. These 

gaps include (1) a lack of transparency and accountability of high-cost spending 

and (2) poor accessibility and usability of data and information. Specifically, FCC 

has not traditionally demonstrated how high-cost funds were spent and the 

results of that funding because FCC had not collected data to do so.

Representatives of competitive carriers and consumers told us FCC should 

increase all carriers’ accountability for their use of high-cost funds by providing 

information on the results of the funding. Furthermore, FCC has not traditionally 

presented the high-cost program data and information it has collected in a 

manner that is easy and accessible for interested parties to use. Although FCC 

made improvements to its data collection and presentation that could help it 

address some of these gaps, FCC has not indicated what information it will make 

publicly available on a regular basis in the future. As a result, it is difficult for 

interested parties to use the information in meaningful ways, such as by making 

connections between the different sources of data, drawing conclusions about 

the program, and using the data to inform policy decision making. By improving 

the transparency and accountability of USF’s high-cost spending, FCC and 

interested parties could better understand the effects of the reforms; determine 

those most successful in efficiently enhancing broadband availability, service 

quality, and capacity; and identify areas for improvement.

GAO’s survey of state utility commissions in all 50 states and the District of 

Columbia showed that as of February 2014, few states reported making changes 

to their states’ high-cost service programs because of FCC’s 2011 reforms. Of 

the 24 states that reported having a state program, only 4 reported making 

changes to that program either wholly or in part because of FCC’s reforms. 

Seven states reported that they were considering making changes as a result of 

the reforms; these changes ranged from reconsidering the amount of funds that 

their state program should provide to carriers to transitioning to a fund that 

supports advanced services, like broadband.

View GAO-14-587. For more information, 

contact Mark Goldstein, (202) 512-2834, 

goldsteinm@gao.gov.
Page i GAO-14-587 USF High-Cost Program Reforms

Letter 1

Background 4

Although FCC Has Not Implemented All Funding Reforms 

Adopted in the USF Transformation Order, Stakeholders 

Generally Supported FCC’s Reform Efforts 10

FCC’s Ability to Ensure Current and Future USF Reforms Are 

Informed by Data Is Limited 19

Few States Reported Making Changes to Their State High-Cost 

Service Programs Thus Far as a Result of FCC’s 2011 USF 

Reforms 25

Conclusions 29

Recommendation for Executive Action 31

Agency Comments 31

Appendix I Objectives, Scope, and Methodology 37

Appendix II Copy of Survey to State Utility Commissions 43

Appendix III Additional Information on USF and the High-Cost Program 47

Appendix IV Comments from the Federal Communications Commission 48

Appendix V GAO Contact and Staff Acknowledgments 51

Tables

Table 1: Industry Stakeholders Contacted 39

Table 2: USF Programs 47

Table 3: FCC’s High-Cost Program Performance Goals and 

Measures 47

Contents
Page ii GAO-14-587 USF High-Cost Program Reforms

Figures

Figure 1: States with High-Cost Service Programs, as of February 

2014 6

Figure 2: Connect America Fund Support Mechanisms 8

Figure 3: Connect America Fund Phase I Disbursements for 

Rounds 1 and 2 and Promised Deployment 12

Figure 4: States That Changed Their High-Cost Service Programs 

Wholly or in Part Because of FCC’s Universal Service 

Fund’s Transformation Order Reforms, as of February 

2014 26

Abbreviations

CAF Connect America Fund 

CCA Competitive Carriers Association 

Comptel Competitive Communications Association

ETC eligible telecommunications carrier

FCC Federal Communications Commission 

GB gigabyte

Gbps 1 billion bits per second

kbps 1,000 bits per second

Mbps 1 million bits per second

NARUC National Association of Regulatory Utility Commissioners 

NASUCA National Association of State Utility Consumer Advocates

NCTA National Cable and Telecommunications Association 

NECA National Exchange Carrier Association 

OMB Office of Management and Budget 

USAC Universal Service Administrative Company 

USDA U.S. Department of Agriculture 

USF Universal Service Fund 

USTelecom United States Telecom Association 

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Page 1 GAO-14-587 USF High-Cost Program Reforms

441 G St. N.W.

Washington, DC 20548

July 22, 2014

Congressional Requesters

For many decades, federal policy has called for making affordable 

residential telephone service available to the greatest possible number of 

Americans, a policy known as “universal service.” At the federal level, the 

Federal Communications Commission (FCC) manages the collection and 

disbursement of funds to support universal service through its Universal 

Service Fund (USF), which includes programs designed to ensure access 

to affordable communications for schools, libraries, health care providers, 

and rural, high-cost, and low-income consumers. The USF programs are 

funded through mandatory payments from companies providing 

telecommunications services, and companies usually make these 

payments by passing the costs onto consumers as a line item fee on their 

telephone bill. Since 1998, USF has distributed about $90 billion to 

telecommunications carriers in all 50 states, the District of Columbia, and 

all U.S. territories. Some states also collect funds from consumers for 

state universal service programs to further support carriers and universal 

service in their state. The USF high-cost program, which is the focus of 

this report, has traditionally targeted financial support to rural areas 

where, according to data from FCC, the cost to provide service can be 

more than three-times greater than the cost to provide service in urban 

areas. The support provided by the high-cost program has allowed 

carriers to charge rural customers lower rates than would otherwise be 

available to them. Since 2001, the high-cost program has grown 

substantially, increasing the annual amount of money collected from 

consumers and disbursed to carriers by 73 percent, from $2.6 billion in 

2001 to $4.5 billion in 2013. Because of its substantial growth, there have 

been long-standing concerns about what the program is accomplishing 

and the cost burden it imposes on consumers.

Recognizing that broadband service is a critical component of the nation’s 

infrastructure and a key driver of economic growth, the National 

Broadband Plan provided a road map for FCC to reform the high-cost 

program to ensure that all Americans have access to broadband-capable 
Page 2 GAO-14-587 USF High-Cost Program Reforms

networks.1 In response to recommendations in the National Broadband 

Plan, FCC issued the USF Transformation Order in November 2011, 

which fundamentally reformed the high-cost program so that it could 

support both telephone and broadband service.2 Specifically, the USF 

Transformation Order reforms require carriers that receive high-cost 

support to offer broadband services in their supported service areas, 

meet certain broadband performance requirements, and report regularly 

on associated broadband performance measures. FCC also adopted new 

rules to be used to determine the amount of subsidy any carrier would 

receive and, for the first time, capped the fund at $4.5 billion and set limits 

on the amount of funds available to carriers. In April 2014, FCC adopted 

rules that proposed targeted adjustments to the USF Transformation 

Order.3

We were asked to provide information on FCC’s USF Transformation 

Order reform efforts and on the effects to state universal service funds. 

This report examines (1) the extent to which FCC implemented the 

funding reforms adopted in the USF Transformation Order, and 

stakeholders’ views on FCC’s efforts, (2) the extent to which FCC is 

collecting data to determine the effectiveness of these reforms and how 

FCC intends to ensure that the data collected will inform current and 

future reforms, and (3) what changes, if any, states have made to their 

state universal service funds since FCC adopted the reforms in 2011.

 1

In 2009, Congress required FCC to develop a broadband plan to ensure that every 

American has access to broadband capability including a detailed plan for providing this

service at affordable rates. American Recovery and Reinvestment Act of 2009, Pub. L. 

No. 111-5, § 6001(k)(1), 123 Stat. 115, 515 (2009). In 2010, an FCC task force issued the 

National Broadband Plan, which recommended reforming USF so it could support both

telephone and broadband service. FCC, Connecting America: The National Broadband 

Plan (Washington, D.C.: Mar. 16, 2010).

2

FCC, Connect America Fund et al., Report and Order and Further Notice of Proposed 

Rulemaking, 26 FCC Rcd 17663 (2011). There were several legal challenges to FCC’s 

authority under the USF Transformation Order to use USF monies for deploying 

broadband-capable networks that were resolved in favor of FCC in a court decision by the 

10th Circuit of the U.S. Court of Appeals. Direct Communs. Cedar Valley, LLC v. FCC (In 

re FCC 11-161), 2014 U.S. App. LEXIS 9637 (10th Cir., May 23, 2014).

3 Connect America Fund et al., Report and Order, Declaratory Ruling, Order, 

Memorandum Opinion and Order, Seventh Order on Reconsideration, and Further Notice

of Proposed Rulemaking, WC Docket No. 10-90 et al., FCC 14-54, 2014 FCC LEXIS 2060 

(rel. June 10. 2014).
Page 3 GAO-14-587 USF High-Cost Program Reforms

In this report, we focused on the high-cost program funding reforms in the 

USF Transformation Order. Although FCC also made changes to 

intercarrier compensation in the USF Transformation Order, we did not 

review FCC’s reform efforts related to intercarrier compensation because 

it is governed by a different system of federal and state rules than those 

governing universal service.4 Specifically, we focused on four industrywide reforms and four carrier-specific reforms, discussed later in this 

report. We selected these reforms because they were the ones we 

identified and reported on in our 2012 review of the high-cost program.5

To determine the extent to which FCC has implemented the reforms, we 

reviewed the USF Transformation Order, other relevant orders, further 

notices of proposed rulemakings, and public notices that FCC issued after 

releasing the USF Transformation Order, and interviewed FCC officials. 

To gather industry stakeholder views on FCC’s efforts, we interviewed 

nine associations that represent different types of telecommunications 

carriers, cable providers, state utility commissions, and consumers. We 

identified these associations based on our prior reports as well as filings 

with FCC regarding the USF Transformation Order. To evaluate FCC’s 

data collection, analysis, reporting and presentation, and efforts to 

measure program effectiveness, we interviewed FCC officials and 

reviewed FCC documentation and online materials, such as key forms 

FCC uses to collect data from carriers, FCC’s broadband and USF 

reports, FCC’s performance goals and measures for the high-cost 

program, and FCC’s online maps. We compared FCC’s efforts with 

reports and guidance we published6

 4

Intercarrier compensation refers to the charges that one carrier pays to another carrier to 

originate, transport, and/or terminate telecommunications traffic.

related to program transparency and 

accountability and public data presentation—in particular, our findings 

related to federal data transparency lessons learned and the 

implementation of electronic government provisions—as well as relevant 

material from the Office of Management and Budget (OMB), such as its 

5

In our 2012 report, we examined the USF Transformation Order and FCC’s plans for 

repurposing the high-cost program for broadband. GAO, Telecommunications: FCC Has 

Reformed the High-Cost Program, but Oversight and Management Could be Improved, 

GAO-12-738 (Washington, D.C.: July 25, 2012).

6

For example, see GAO, Federal Data Transparency: Opportunities Remain to 

Incorporate Lessons Learned as Availability of Spending Data Increases, GAO-13-758

(Washington, D.C.: Sept. 12, 2013); and GAO, Electronic Government Act: Agencies 

Have Implemented Most Provisions, but Key Areas of Attention Remain, GAO-12-782

(Washington, D.C.: Sept. 12, 2012).
Page 4 GAO-14-587 USF High-Cost Program Reforms

2012 digital government strategy.7 To understand the roles of the 

Universal Service Administrative Company (USAC) and the National 

Exchange Carrier Association (NECA) with respect to FCC’s efforts, we 

reviewed material and interviewed officials from those entities.8

We conducted this performance audit from August 2013 to July 2014 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

To 

determine what changes states have made, we surveyed the state utility

commissions of all 50 states and the District of Columbia and analyzed 

the responses. The survey included questions about changes states 

made to their state high-cost programs wholly or in part because of FCC’s 

2011 reforms and how FCC’s reforms have affected states, among other 

things. To ensure that our survey questions and skip pattern were clear 

and logical and that states could answer the questions without undue 

burden, we pretested our survey with five states: Arkansas, Maine, 

Maryland, Tennessee, and Texas. We selected the pretest states to 

provide for variation in program characteristics and geographic location. 

We administered the survey from January through February 2014 and 

received a 100 percent response rate. Further details on our scope and 

methodology are provided in appendix I and a copy of our survey is 

provided in appendix II.

The 1996 Telecommunications Act specified that consumers in “rural, 

insular, and high-cost areas” should have access to telecommunication 

services and rates that are “reasonably comparable” to consumers in 

 7

OMB, Digital Government: Building a 21st Century Platform to Better Serve the American 

People (Washington, D.C.: May 23, 2012).

8

USAC is the non-profit corporation that administers USF programs under FCC’s 

direction. NECA is a non-profit association established by FCC to perform telephone 

industry tariff filings and revenue distributions.

Background

Universal Service and the 

USF High-Cost Program
Page 5 GAO-14-587 USF High-Cost Program Reforms

urban areas.9 USF provides financial support (i.e., subsidies) to carriers 

through four different programs, each targeting a particular group of 

telecommunications users. Appendix III contains a list of these programs. 

One of these programs—the high-cost program—provides subsidies to 

both wireline and wireless telecommunications carriers that provide 

telecommunications services—including basic (i.e., landline) and wireless 

(i.e., mobile) service—in rural, insular, and other remote areas where the 

costs of providing service is high.10

The support a carrier can receive depends on various factors, including 

its status as either the “incumbent” carrier in a given area or a competitor 

and the number of lines it claims in its service area. Incumbent carriers 

are telephone carriers that were in existence when Congress passed the 

1996 Telecommunications Act and were members of NECA, and 

competitive carriers are carriers that compete with these incumbents. 

These incumbent carriers are further classified as either “rural”—generally 

small carriers serving primarily rural areas—or “nonrural”—generally large 

carriers serving both rural and urban areas. Most small rural carriers are 

subject to rate-of-return regulation and are thus referred to as rate-ofreturn carriers.

The subsidies are intended to offset 

the carriers’ high costs, thereby allowing them to provide services and 

rates that are reasonably comparable to those that consumers in lowcost—generally urban—areas receive. In 2012, support for the four 

programs totaled $8.7 billion, but the high-cost program accounted for 

almost 50 percent of USF support.

11 These carriers serve 5 percent or less of U.S. 

households. Nonrural carriers are usually larger and subject to price-cap 

regulation, and are thus referred to as price-cap carriers.12

 9 Pub. L. No. 104-104, § 101(a), 110 Stat. 71 (1996).

The price-cap 

carriers provide service to approximately 95 percent of households. A 

carrier’s service area is usually the service territory where a carrier 

10Wireline carriers are providers of traditional landline telecommunications services 

involving connections to the public switched telephone network by wire (or fiber) local 

loops that terminate in fixed locations at customer premises, such as residences. Wireless 

carriers are providers of wireless telecommunications services, operating with 

electromagnetic waves, such as providing cellular telephone service.

11Rate-of-return regulation is a form of rate regulation wherein the carrier is allowed to 

recover its costs and earn a predetermined rate (or profit).

12Price-cap regulation is a form of rate regulation wherein the carrier may charge rates for 

regulated services up to an allowable cap, which is adjusted based on factors beyond the 

carrier’s control, such as inflation.
Page 6 GAO-14-587 USF High-Cost Program Reforms

operates and provides services in one state. Service areas are often 

reported as “study areas” and are identified by a “study area code.”

State governments play a role in implementing the federal high-cost 

program, as do other entities. As shown in figure 1, there were 24 states 

as of February 2014 that had established high-cost programs to further 

fund carriers and universal service in their states. States usually fund their 

programs through a fee or tax levied directly on consumers or, like the 

federal program, by requiring companies providing telecommunications 

services to make payments, costs that the companies are allowed to pass 

on to consumers.

Figure 1: States with High-Cost Service Programs, as of February 2014
Page 7 GAO-14-587 USF High-Cost Program Reforms

While FCC has overall responsibility for the federal high-cost program—

including making and interpreting policy, overseeing program operations, 

and ensuring compliance with its rules—it delegated responsibility for 

administering the day-to-day operations of the program to USAC. State 

regulatory commissions are primarily responsible for determining carriers’

eligibility to participate in the program by certifying them as eligible 

telecommunications carriers (ETCs).

FCC adopted the USF Transformation Order in November 2011 in 

response to recommendations made in the National Broadband Plan. The 

National Broadband Plan determined the minimum speed carriers needed 

to provide consumers in rural and high-cost areas to enable them to use 

critical broadband applications in a manner reasonably comparable to 

broadband subscribers in urban areas. The plan also concluded that 

millions of Americans did not have access to broadband infrastructure 

and recommended, among other things, creating a fund to address 

broadband availability gaps in unserved areas. Finally, the plan 

recommended creating a fund to provide support for deployment of 

wireless networks. Thus in the USF Transformation Order, FCC adopted 

new rules to fundamentally change the high-cost program by extending 

the program to support broadband-capable networks. FCC created the 

Connect America Fund (CAF) and, within CAF, a number of other support 

mechanisms to improve the level of wireline and wireless broadband 

service available in unserved areas. (See fig. 2.) FCC set a budget of 

$4.5 billion annually for CAF until 2017, by taking a number of actions, 

including eliminating certain types of support, designing new ways to 

distribute CAF funds to carriers, and setting caps for rate-of-return 

carriers’ capital and operating expenses.13 According to the USF 

Transformation Order, the estimates of the funding necessary for CAF 

components and legacy high-cost mechanisms represented FCC’s 

predictive judgment as to how best to allocate limited resources at that 

time. In the USF Transformation Order, FCC also established five 

performance goals and three performance measures for the program. 

(See app. III for a full list of these goals and measures.)

 13For more information on the USF Transformation Order, see GAO-12-738.

The USF Transformation 

Order and April 2014 

Report and Order
Page 8 GAO-14-587 USF High-Cost Program Reforms

Figure 2: Connect America Fund Support Mechanisms 

a

CAF Phase I and CAF Phase II funds are for areas currently served by incumbents that are pricecap carriers.

b

Price-cap carriers receive CAF Phase I frozen support until FCC implements CAF Phase II.

c

This amount includes CAF support that carriers receive to replace intercarrier compensation.

To assure broadband subscribers the minimum level of service 

recommended in the National Broadband Plan, FCC established public 

interest obligations for all broadband carriers eligible to receive high-cost 

funds. Prior to the implementation of the USF Transformation Order, 

carriers were not required to meet any specific broadband performance 

standards in exchange for receiving high-cost funds. In the USF 

Transformation Order, FCC requires carriers receiving funds to provide 

broadband service to customers at prices reasonably comparable to 

prices charged in urban areas and to meet certain requirements for 

broadband speed, latency, and capacity as described below:

• Broadband speed is described in download and upload capabilities 

and is measured by the number of bits of data transferred per second 

and includes kilobits per second (1,000 bits per second—kbps), 

megabits per second (1 million bits per second—Mbps), and gigabits 

(1 billion bits per second—Gbps). Download speed refers to the rate 
Page 9 GAO-14-587 USF High-Cost Program Reforms

at which data is transferred from the carrier to the consumer. Upload 

speed refers to the rate at which data is transferred from the 

consumer to the broadband carrier. In the USF Transformation Order, 

FCC required carriers to provide service at the speed of 4 Mbps 

download and 1 Mbps upload. In April 2014, FCC proposed to revise 

the broadband performance obligations to require minimum speeds of 

10 Mbps download.14

• Latency is a measure of the time it takes for a packet of data to travel 

from one point to another in the carrier’s network and affects a 

consumer’s ability to use real-time applications, including interactive 

voice or video communication.15 FCC requires carriers to provide 

service with sufficiently low latency to enable use of real-time 

applications.

• Capacity is the total volume of data sent and/or received by the end 

user over a period of time and is often measured in gigabytes (GB) 

per month.16

In April 2014, FCC adopted an order that made targeted adjustments to 

the USF Transformation Order; we refer to this order as the April 2014 

Report and Order. FCC explained the need for the order by noting that in 

the USF Transformation Order, FCC had sought comment on several 

issues related to the continuing implementation of the Connect America 

Fund. The April 2014 Report and Order adopted rules to address several 

of these issues, among other things, as explained below.

Some broadband service providers impose monthly data 

usage limits, restricting users to a pre-determined quantity of data, 

and these limits typically vary between wireline and wireless services. 

FCC requires carriers to offer service with capacity usage limits 

reasonably comparable to usage limit offerings in urban areas.

 14Connect America Fund et al., Report and Order, Declaratory Ruling, Order, 

Memorandum Opinion and Order, Seventh Order on Reconsideration, and Further Notice 

of Proposed Rulemaking, WC Docket No. 10-90 et al., FCC 14-54, 2014 FCC LEXIS 2060 

(rel. June 10. 2014).

15Data traveling through a network are broken up into packets, each of which is 

independently routed through a network and reassembled at the final destination.

16A “byte” equals 8 bits.
Page 10 GAO-14-587 USF High-Cost Program Reforms

FCC has implemented several of the funding reforms it adopted in the 

USF Transformation Order, and the various stakeholder groups we 

contacted were generally supportive of FCC’s reform efforts. In particular, 

FCC implemented (1) industry-wide reforms (that is, the reforms applied 

to all carriers receiving high-cost support), (2) CAF Phase I, and (3) 

Mobility Fund Phase I. CAF Phase I and Mobility Fund Phase I are 

carrier-specific reforms that were designed to immediately disburse 

funding to those carriers and spur broadband deployment in rural areas.

Industry-Wide Reforms

• Eliminating identical support. High-cost support for carriers in areas 

already served by an incumbent, referred to as identical support, will 

be phased out over a 5-year period, ending in 2016. Representatives 

of large carriers told us they supported this reform.

• Eliminating 100 percent overlap. High-cost support for carriers in 

areas where an unsubsidized competitor offers voice and broadband 

service at speeds of at least 4 Mbps download and 1 Mbps upload will 

be phased out over 3 years. Representatives of cable providers told 

us this was one of the best reforms FCC made.

• Establishing a $250 monthly per-line support cap. High-cost support 

for carriers will be capped at $250 per line, per month; support over 

$250 per line per month will be phased out over 3 years for carriers 

Although FCC Has 

Not Implemented All 

Funding Reforms 

Adopted in the USF 

Transformation Order, 

Stakeholders 

Generally Supported 

FCC’s Reform Efforts

FCC Has Implemented 

Industry-Wide and Some 

Carrier-Specific Funding 

Reforms
Page 11 GAO-14-587 USF High-Cost Program Reforms

above this cap.17 Representatives of consumers and large carriers 

told us they supported this reform.

• Establishing broadband public interest obligations. High-cost support 

will only be provided to carriers that meet FCC’s requirements for 

broadband speed, latency, capacity, and price. Most stakeholder 

groups we contacted were supportive of FCC’s adoption of public 

interest obligations for all carriers. Representatives of consumers 

supported the public interest obligations, stating that companies 

receiving public money should be providing quality service. 

Representatives of competitive carriers told us this reform was 

absolutely necessary and one of the best reforms FCC made. 

However, representatives of small, rural carriers told us it will be 

difficult for many carriers to achieve the 1 Mbps upload speed 

requirement without more funding to help deploy new infrastructure.

CAF Phase I

In CAF Phase I, FCC took two distinct actions: FCC froze the existing 

high-cost support amounts to price-cap carriers, which in 2012 was 

approximately $1.2 billion, and made up to $600 million available in 

additional funding to price-cap carriers to extend broadband-capable 

infrastructure; FCC refers to the additional funding as incremental 

support. Of the $600 million that FCC made available, approximately 

$438 million was disbursed to carriers in two rounds. In round one, 

funding was offered to carriers promising to deploy new infrastructure to 

areas lacking Internet access. Price-cap carriers accepting this support 

were to be paid $775 for each new home, office, or community anchor 

institution to which these carriers deployed infrastructure.18

 17In the USF Transformation Order, FCC made provision for carriers to apply for a waiver 

if they believed they could not operate under these rules.

In round two, 

funding was offered to price-cap carriers promising to deploy new 

infrastructure as well as upgrade existing infrastructure. As part of round 

two, FCC established a process whereby parties could challenge whether 

a location was already served by an existing provider and thus ineligible 

18FCC defines community anchor institutions as schools, libraries, medical and healthcare 

providers, public safety entities, community colleges and other organizations that provide 

support services to facilitate greater use of broadband service by vulnerable populations. 
Page 12 GAO-14-587 USF High-Cost Program Reforms

for support.19

Figure 3: Connect America Fund Phase I Disbursements for Rounds 1 and 2 and Promised Deployment

FCC estimated that the funding under both rounds of CAF 

Phase I would result in the promised deployment of broadband-capable 

infrastructure to a total of more than 1.66 million people, as shown in 

figure 3.

Stakeholder response to CAF Phase I was mixed. Representatives of 

price-cap carriers told us their members were reasonably satisfied with 

Phase I and viewed it as a sensible program that has worked well, while 

representatives of wireless carriers told us that the Phase I support 

should have been distributed through competitive bidding and been open 

to all eligible carriers, rather than made available only to incumbent pricecap carriers.

Mobility Fund Phase I

In Mobility Fund Phase I, FCC made $300 million available in one-time 

support to wireless carriers. These funds were made available to 

accelerate high-speed wireless network deployment in areas where 

service would not be deployed without federal support but which could be 

 19Over 80 interested parties participated in this challenge process, and on January 10, 

2014, FCC issued an order adjudicating these challenges. See Connect America Fund, 

Order, 29 FCC Rcd 181 (Wireline Comp. Bur. 2014) (Phase I Challenge Process 

Resolution Order).
Page 13 GAO-14-587 USF High-Cost Program Reforms

made profitable once the necessary infrastructure had been deployed or 

upgraded. Those wireless carriers wishing to receive Mobility Fund Phase 

I support were asked to indicate the amount of one-time support they 

would require to achieve the defined performance standards for a 

specified number of road miles, in a process FCC refers to as a “reverse 

auction.”20 FCC held the reverse auction in September 2012 and received 

795 winning bids to provide upgraded or new service to eligible census 

blocks containing approximately 84,000 road miles in 31 states and 1 

territory. Representatives of wireless carriers were pleased to receive 

funding for broadband deployment but told us that given the increased 

consumer demand for wireless service, they would have preferred to see 

a larger part of CAF dedicated to the Mobility Fund that is made available 

specifically for wireless carriers.

FCC has encountered delays in implementing the more complex carrierspecific funding reforms adopted in the USF Transformation Order, and 

stakeholders have voiced concerns about the delays as well as various 

aspects of the reforms. FCC recognized that these carrier-specific funding 

reforms would require extensive cost modeling and input from 

stakeholders and could not be immediately implemented. These reforms 

were intended to establish methodologies to provide funds that would 

enable price-cap, wireless, and rate-of-return carriers to support both 

voice and broadband services. Specifically, the four reforms that have not 

yet been implemented are referred to as (1) CAF Phase II, (2) Mobility 

Fund Phase II, (3) limits on capital and operating expenses for rate-ofreturn carriers, and (4) Remote Areas Fund. As discussed below, the 

stakeholder groups we contacted had concerns with specific aspects of 

the different reforms, depending on a number of factors, including 

whether the stakeholders were incumbents or competitors and, if 

incumbents, whether the stakeholders are regulated as price-cap or rateof-return carriers.

CAF Phase II

In designing a mechanism to distribute funds in price-cap territories, FCC 

determined that in CAF Phase II it would provide $1.8 billion annually in 

 20The carrier who submits the lowest bid will receive high-cost support to deploy the 

broadband-capable network in areas for which they bid. FCC sometimes refers to this 

competitive bidding process as a “reverse auction” since the lowest bid wins.

FCC’s Implementation of 

the More Complex CarrierSpecific Funding Reforms 

Has Been Delayed, and 

Stakeholders’ Views 

Reflect Varying Concerns
Page 14 GAO-14-587 USF High-Cost Program Reforms

support to those areas through a combination of a new forward-looking 

cost model and a competitive-bidding process. Specifically, FCC planned 

to develop a model that could be used for each census block in high-cost 

areas to determine the amount of support required to extend and sustain 

a broadband-capable network. FCC would offer each price-cap carrier 

monthly model-based support for a period of 5 years in exchange for a 

state-level commitment to serve specified areas within the state that were 

not served by an unsubsidized competitor. If that offer were not accepted, 

FCC would determine support through a competitive-bidding process.

In the USF Transformation Order, FCC planned to have adopted the 

model and the competitive bidding process by the end of 2012 and to 

have begun implementing CAF Phase II by January 2013. However, the 

reform has not yet been implemented. FCC officials cited their efforts to 

gather stakeholder input as the primary factor affecting their ability to 

meet their original deadlines for implementing CAF Phase II.21 In 

particular, FCC held numerous workshops to solicit stakeholder input on 

the model, issued several public notices seeking additional comment, 

released 11 versions of the model, and adopted the Phase II cost model 

in April 2014.22 Following adoption of the model, FCC commenced the 

challenge process to determine the final list of census blocks eligible for 

model-based support.23

 21FCC develops regulations (or rules) through a process that is largely defined in the 

Administrative Procedure Act, 5 U.S.C. §553, which requires FCC to provide the public 

with notice of its proposed and final rules and offer the public an opportunity to comment 

as the rules are developed.

However, FCC officials told us that the challenge 

process will take at least 90 days; after which time, FCC will make offers 

to carriers that the carriers can either accept or decline. FCC officials do 

not expect carriers to receive Phase II model-based support until the end 

22Connect America Fund et al., WC Docket No. 10-90 et al., Report and Order, DA 14-534 

(Wireline Comp. Bur. rel. Apr. 22, 2014).

23On May 16, 2013, FCC’s Wireline Competition Bureau released the Phase II Challenge 

Process Order implementing FCC’s requirement that CAF Phase II provide an opportunity 

for interested parties to challenge the determination of whether an area is served by an 

unsubsidized competitor, and thus ineligible for the offer of model-based Phase II support. 

This order established a process for filing challenges and the format in which challenges 

must be made. See Connect America Fund et al., 28 FCC Rcd 7211, Report and Order, 

DA 13-1113 (Wireline Comp. Bur. rel. May 16, 2013). On June 30, 2014, FCC 

commenced the Phase II challenge process. Wireline Competition Bureau Commences 

Connect America Phase II Challenge Process, WC Docket Nos. 10-90, 14-93, Public 

Notice, DA 14-942 (Wireline Comp. Bur. rel. June 30, 2014).
Page 15 GAO-14-587 USF High-Cost Program Reforms

of 2014 at the earliest. In addition to the delay described above, FCC has 

also not finalized the specific form of the competitive-bidding mechanism 

it will use if a price-cap carrier declines to accept model-based support; 

during the time of our review, FCC officials did not provide a date by 

which they expected this to be complete. In the April 2014 Report and 

Order, FCC proposed to streamline the competitive-bidding process to 

allow non-traditional providers, such as cable and satellite providers, to 

become eligible for support.

Representatives of price-cap carriers noted that although FCC is behind 

on its timelines, the original timelines were quite ambitious given the 

complexity of the reforms being implemented, and noted that FCC’s 

rulemaking process can draw out a proceeding. Representatives of rateof-return carriers echoed this observation, noting that building cost 

models was a complex undertaking and could be a significant factor in 

explaining the delays. Wireless carriers and cable providers would like 

FCC to move more quickly to implement CAF Phase II so that they can 

have an opportunity to provide service and receive USF support. With

regard to the implementation of CAF Phase II, representatives of pricecap carriers and consumer groups generally did not have concerns with 

CAF Phase II, while representatives of competitive carriers did. 

Representatives of price-cap carriers told us they have generally not been 

negatively affected by the process and, overall, view the reforms 

positively. Representatives of consumer groups told us they hope that 

changing the fund to support broadband will increase the demand for 

broadband and lead to lower rates, particularly in rural areas. However, 

representatives of competitive carriers—primarily cable and wireless 

providers—were critical of the process. While they supported the 

changes, they would like the process to have been more competitively 

neutral, giving them the opportunity to compete for access to CAF funds 

earlier in the process. The current methodology only allows competitors 

the opportunity to compete for funding after the incumbent price-cap 

carrier has refused to serve an area for the amount of support FCC offers. 

In the USF Transformation Order, FCC discussed the solicitation of 

comments on this issue but determined that given the decades-old 

system currently in place, the approach it adopted would best serve 

consumers in the affected areas.

Mobility Fund Phase II

FCC is establishing Mobility Fund Phase II to provide ongoing support for 

wireless services in areas that are not profitable to serve without federal 

support. FCC set the fund amount at $500 million annually, up to $100 
Page 16 GAO-14-587 USF High-Cost Program Reforms

million of which is to be designated for Tribal lands. To implement the 

reform, FCC is developing a funding distribution methodology and 

determining eligible geographic areas and providers. Although in the USF 

Transformation Order FCC expected to implement this reform between 

July and September 2013, using a reverse auction, and to begin 

disbursing funds in 2014, this reform has not yet been implemented. FCC 

officials stated that because there has been rapid private sector 

expansion of improved mobile broadband service since the USF 

Transformation Order was adopted in 2011, FCC is considering 

retargeting the Mobility Fund Phase II support. In the April 2014 Report 

and Order, FCC sought comment on whether to retarget the fund to 

provide support for a higher level of service.

In commenting on the delays in implementing this reform, in addition to 

FCC’s lengthy rulemaking process, representatives of wireless carriers 

noted that implementation has been affected by the changes in FCC 

leadership that have occurred since the USF Transformation Order was 

adopted: these changes include the departure of one Chairman, the 

installation of an interim Chairman, and the replacement of the interim 

Chairman by a newly appointed one. These representatives also stated 

that carriers are reluctant to invest in additional deployment until the 

Mobility Fund Phase II funding mechanism is complete and they have a 

better understanding of the funding they will receive. According to these 

representatives, 39 percent of households now rely on wireless telephone 

service and wireless providers are paying 44 percent of USF funds, 

therefore they believe more than $500 million in annual funds should 

have been made available for wireless carriers. However, representatives 

of consumer groups told us they are concerned about wireless service 

becoming a substitute for wireline, given the pricing structure for wireless 

broadband. They said wireless plans usually place limits on the amount of 

data a customer can download and when those limits are exceeded, the 

service can become quite expensive.

Limits on Capital and Operating Expenses for Rate-of-Return 

Carriers

In the USF Transformation Order, FCC adopted a rule to limit the 

reimbursable capital and operating expenses used to determine the level 

of high-cost support for rate-of-return carriers and to maintain total 
Page 17 GAO-14-587 USF High-Cost Program Reforms

funding for rate-of-return carriers at approximately $2 billion per year;24

In April 2012, FCC adopted two regression models, one each for 

establishing the capital and operating expense limits of rate-of-return 

carriers and put the model in effect in July 2012. Over an 18-month period 

ending on December 31, 2013, 107 study areas received decreased 

funding and 769 study areas received increased funding due to these 

limits on capital and operating expenses.

FCC has since reconsidered this reform. Under the previous universal 

service rules, FCC distributed high-cost funds to rate-of-return carriers 

based on their actual costs. Some carriers were reimbursed for up to 100 

percent of their eligible expenditures, faced no FCC-imposed limits, and 

had no incentive to be more efficient. To carry out the new rule, FCC 

proposed using regression analyses to estimate the appropriate levels of 

capital and operating expenses for each rate-of-return study area and to 

limit expenses based on these estimates.

25 In response to petitions for 

reconsideration of these models, FCC continued to refine the models and, 

in an order released February 2013, determined that it would be better to 

use a single regression model for both capital and operating expenses for 

a service area, rather than the two that were originally planned. However, 

by the end of 2013, FCC had not yet determined how to do so. In the April 

2014 Report and Order, FCC concluded that placing caps on the amount 

of support available to rate-of-return carriers had not encouraged new 

investment in broadband capable networks as intended, and FCC 

eliminated the rule. FCC stated in the order that it would continue to 

evaluate alternative ways to ensure that rate-of-return carriers have 

structural incentives to operate efficiently and sought comment on how to 

do so.26

Representatives of rate-of-return carriers stated that for their members, 

the primary effect of the implementation delays has been the increased 

level of uncertainty and the resulting decreased level of investment in 

broadband infrastructure. They told us that uncertainty about future 

 24Connect America Fund; High-Cost Universal Service Support, WC Docket Nos. 10-90, 

05-337, Order, DA 12-646, 27 FCC Rcd 4235 (Wireline Comp. Bur. rel. Apr. 25, 2012). 

25FCC, Universal Service Implementation Progress Report, WC Docket No. 10-90, at Fig. 

5 (Mar. 18, 2014).

26Connect America et al., WC Docket No. 10-90 et al., Report and Order et al., FCC 14-

54, paras.127-36 (rel. June 10, 2014).
Page 18 GAO-14-587 USF High-Cost Program Reforms

implementation of the caps on rate-of-return carriers’ expenditures is the 

primary cause of decreased investment. In our prior work, we found that, 

according to stakeholders, uncertainty regarding future USF high-cost 

support has led some carriers to reduce or eliminate broadband 

infrastructure investment.27 In addition, the U.S. Department of Agriculture 

(USDA) reported in its fiscal year 2012 performance report that “the level 

of uncertainty caused by the new USF and intercarrier compensation 

revisions directly impacted the level of demand for the infrastructure loan 

program.”28

Remote Areas Fund

Regarding the reform itself, representatives of rate-of-return 

carriers told us that their members were critical of the imposition of these 

limits. They said their members believed they were being asked to 

provide more services (i.e., both voice and broadband) with less support. 

While these representatives recognized that some changes were needed 

to increase the efficiency of the fund, they believe the methodology 

outlined in the USF Transformation Order is an overcorrection of the 

problem and have proposed an alternative methodology to FCC. On the 

other hand, representatives of competitive carriers supported the reform. 

FCC noted that in the USF Transformation Order, rate-of-return carriers 

currently receive about $2 billion in high-cost program support but serve 

less than 5 percent of the access lines in America; FCC also noted that 

the reforms for rate-of-return carriers are meant to increase incentives for 

these carriers to be efficient in their use of public resources. 

Representatives of three different associations representing competitive 

carriers told us that if the current caps on expenditures are not adopted, 

FCC must design some other mechanism for limiting the amount of USF 

funds going to rate-of-return carriers. Representatives of one competitor 

association told us they believe simply eliminating the reform that caps 

funds for these expenses would be harmful to competitors.

In the USF Transformation Order, FCC adopted a reform aimed at 

ensuring availability of affordable voice and broadband services to the 

 27GAO, Telecommunications: USDA Should Evaluate the Performance of the Rural 

Broadband Loan Program, GAO-14-471 (Washington, D.C.: May 22, 2014).

28USDA, USDA Fiscal Year 2012 Annual Performance Report (Washington, D.C.: 2012). 

USDA’s Rural Utilities Service has three programs that provide loans for broadband 

infrastructure projects: the Rural Broadband Access Loan and Loan Guarantee program, 

the Broadband Initiatives Program, and the Telecommunications Infrastructure Loan 

Program. 
Page 19 GAO-14-587 USF High-Cost Program Reforms

most remote and hard-to-serve areas where FCC said the cost of 

deploying traditional terrestrial broadband networks is extremely high.

Under this reform, FCC established an annual budget of at least $100 

million to ensure that those Americans living in such areas, which FCC 

estimated as numbering less than 1 percent of American households, can 

obtain affordable broadband. In the USF Transformation Order, FCC 

sought comment on how best to implement the Remote Areas Fund, and 

expected to finalize the reform in 2012 with implementation in 2013. 

FCC’s Wireline Competition Bureau released a public notice seeking 

further comment on issues related to the implementation of the Remote 

Areas Fund in January 2013.29 However, as of May 2014, FCC had not 

yet implemented this reform and FCC officials told us this issue was still 

to be decided. Representatives of cable providers told us there is a need 

for FCC to address this issue and establish clear conditions under which 

these funds will be disbursed.

While FCC collects and reports a range of data and information on highcost program funding, we have identified gaps in FCC’s data analysis and 

reporting that limits its ability to evaluate the program, demonstrate its 

effectiveness, and ensure that the data collected will inform current and 

future reforms. Specifically, FCC is limited by (1) a lack of transparency 

and accountability of high-cost spending and (2) poor accessibility and 

usability of data and information.

 29Wireline Competition Bureau Seeks Further Comment on Issues Regarding the Design 

of the Remote Areas Fund, WC Docket No. 10-90, Public Notice, 28 FCC Rcd 265 

(Wireline Comp. Bur. 2013).

FCC’s Ability to 

Ensure Current and 

Future USF Reforms 

Are Informed by Data 

Is Limited

FCC Has Gaps in Data 

Analysis and Reporting
Page 20 GAO-14-587 USF High-Cost Program Reforms

Lack of Transparency and Accountability of High-Cost Spending

In our prior work, we have concluded that transparency of spending—that 

is, reporting the amount spent, who receives the funds, what funds are 

spent on, and the results of that spending—is essential to improving 

accountability.30

FCC collects and reports a broad range of data from carriers, and FCC 

and USAC use this data to manage the high-cost program and, according 

to FCC, to ensure accountability; however, FCC has not traditionally 

demonstrated how funds were spent and the results of that funding. FCC 

collects information from carriers on broadband subscription, prices, 

services and speeds offered, unfulfilled requests for service, complaints 

received, and financial information, among other things, and requires 

carriers to certify their compliance with a variety of other program 

requirements.

Transparency allows policy decision makers and the 

public to access important information—including information they could 

use to judge program effectiveness—and provides opportunities for 

increased oversight. FCC also emphasized the importance of spending 

accountability in the USF Transformation Order. Specifically, the order 

stated that the billions of dollars that the high-cost program disburses 

each year come from American consumers and businesses and that 

funding recipients must be held accountable for how they spend that 

money.

31 FCC reports some of this data and other data and 

information through a variety of mechanisms. For example, FCC provides 

information about Internet access in the United States in its Internet 

access service reports32 and on the status of broadband deployment in 

the United States in its broadband progress reports.33

 30

Starting in 

September 2014, FCC plans to use some of the data it collects to 

GAO-13-758.

31FCC collects this information through FCC Form 477 (Local Telephone Competition and 

Broadband Reporting), Form 481 (Carrier Annual Reporting Data Collection), and Form 

499-A (Annual Telecommunications Reporting Worksheet). Not all carriers must file all of 

these forms.

32For most recent report, see, FCC, Internet Access Services: Status as of December 31, 

2012 (Washington, D.C.: December 2013).

33For most recent report, see, FCC, Eighth Broadband Progress Report, FCC 12-90 

(Washington, D.C.: Aug. 21, 2012).
Page 21 GAO-14-587 USF High-Cost Program Reforms

populate the National Broadband Map.34 FCC also provides information 

specific to the high-cost program. The USAC Disbursement Tool contains 

specific information on the amount of high-cost funds disbursed, which 

interested parties can search by year and month, company name, state, 

study area, or by the service provider’s USAC identification number.35

FCC’s current voice and broadband availability performance measures 

also do not demonstrate results of funding because they do not show how 

high-cost funds contributed to the outcomes that are being measured. For 

example, FCC states that it will measure its goal of ensuring universal 

broadband availability by collecting the number of new locations that gain 

access to broadband service. As a measure of the program’s efficiency, 

the FCC will measure the change in the number of new locations per

million of USF dollars spent. However, these measures count all locations 

that gain access through any means, not those that gained access 

specifically through the use of high-cost funds. Representatives of 

competitive carriers said that FCC’s performance measures do not 

provide evidence that the high-cost program is in any way responsible for 

improving broadband availability and service quality. As a result of not 

demonstrating how funds were spent or what they accomplished, 

interested parties’ ability to hold funding recipients accountable for their 

use of the public’s money is limited, and it is difficult for consumers to see 

what they gained from the money they paid. Additionally, FCC may lack 

important information that could help it make future policy decisions and 

identify areas for improvement.

FCC reports some of this information in its USF monitoring reports. Thus, 

interested parties can use the USAC Disbursement Tool to identify the 

amount of funds carriers received and which carriers received those 

funds. However, parties cannot use any of these reporting mechanisms to 

access information on how carriers used those funds or the results of the 

funding. Representatives of competitive carriers and consumers told us 

FCC should increase all carriers’ accountability for their use of high-cost 

funds by providing this type of information.

 34Within the Department of Commerce, the National Telecommunications and Information 

Administration launched the National Broadband Map in 2011 in collaboration with FCC. 

The map measures broadband availability in the United States by speed and technology 

type. See broadbandmap.gov. In 2013, FCC assumed responsibility for maintaining and 

updating the map. 

35See http://www.usac.org/hc/tools/disbursements/ (accessed Apr. 16, 2014).
Page 22 GAO-14-587 USF High-Cost Program Reforms

Poor Accessibility and Usability of Data and Information

OMB’s 2012 digital government strategy stresses the importance of 

improving the quality, accessibility, and usability of government data.36

For example, the strategy calls for creating, managing, and presenting 

data in customer-centric and user-friendly ways. Additionally, we have 

previously reported on the use of government websites that consolidate 

information in one place, with the goal of increasing accountability.37 For 

example, the Federal Funding Accountability and Transparency Act of 

2006 required OMB to establish a single, searchable website accessible 

to the public that would provide information on government spending.38

FCC has not traditionally presented its broadband and high-cost program 

data and information in a manner that is easy and accessible for 

interested parties to use, or at a geographic level that would allow them to 

draw conclusions about areas subsidized by the program. 

Representatives of competitive carriers told us that it is difficult to make 

connections between the different sources of information and draw 

conclusions about the program’s effects. For example, as described 

above, interested parties can find data—reported by census block or 

tract—on broadband access through the relevant reporting mechanisms, 

and data—reported by study area code—on high-cost fund 

disbursements in the USAC Disbursement Tool. However, there is no 

place where an interested party can go to easily see which study area 

codes correspond with which census blocks or tracts to draw conclusions 

about broadband service in areas that were subsidized by the high-cost 

program. Additionally, the USAC Disbursement Tool and the USF 

The website OMB created—usaspending.gov—provides trends over time, 

interactive graphics, and summaries, among other things. Although we 

found that data reliability on these websites could be improved, we noted 

the benefits they provide by making data available in a manner that is 

easy and accessible. Such benefits can help policy decision makers and 

the public use the information in meaningful ways.

 36OMB, Digital Government: Building a 21st Century Platform to Better Serve the 

American People (Washington, D.C.: May 23, 2012).

37For example, see GAO-12-782 and GAO, IT Dashboard: Agencies Are Managing 

Investment Risk, but Related Ratings Need to Be More Accurate and Available, 

GAO-14-64 (Washington, D.C.: Dec. 12, 2013).

3831 U.S.C. § 6101 note.
Page 23 GAO-14-587 USF High-Cost Program Reforms

monitoring reports are comprised almost entirely of lists of data. 

Representatives of competitive carriers and small rural carriers said that, 

rather than presenting a “data dump,” FCC should present information in 

a way that makes it easier to interpret. Representatives of competitive 

carriers suggested that FCC use an online dashboard format that 

identifies the carriers that received funds, the amount of funds received, 

what the funds were used for, and the results carriers achieved. These 

representatives noted that FCC could update this information regularly 

and plot it over time. As a result of not presenting data in an accessible 

manner, interested parties may find it difficult to use the information in 

meaningful ways, such as by using the information to better assess the 

program’s performance, efficiency, and effects in specific areas. In April 

2014, FCC officials said that FCC is committed to providing broadband 

and USF information in the most user-friendly format possible and that 

they plan to continue to add relevant information to their Connect America 

webpage.39 FCC also acknowledged that the USF monitoring reports 

need to be revamped and is considering ways to improve them, including 

by potentially moving information online.

Recently, FCC has made a number of improvements to its data collection 

and presentation that could eventually help it address some of these 

gaps. Most notably, beginning September 2014, FCC plans to collect 

information on broadband deployment from all carriers and, beginning 

July 2014, require all carriers that receive high-cost funds to file 5-year 

build-out plans and report progress on those plans in their annual reports 

to FCC and their respective state commissions.40

• maps detailing their progress towards meeting their planned targets;

In those progress 

reports, carriers must include:

• an explanation of how much universal service support they receive 

and how it was used to improve service quality, coverage, or capacity; 

and

• an explanation regarding any network improvement targets that have 

not been fulfilled in the prior calendar year.

 39See http://www.fcc.gov/encyclopedia/connecting-america (accessed Apr. 16, 2014). 

40FCC waived the requirement for 2014 for price-cap carriers to file 5-year plans, pending 

implementation of CAF Phase II. See Connect America Fund, WC Docket No. 10-90, DA 

14-591 (Wireline Comp. Bur. rel. May 1, 2014). 

FCC Has Improved Its 

Data Collection Efforts, but 

Has Not Indicated What 

Information Will Be Made 

Available on a Regular 

Basis
Page 24 GAO-14-587 USF High-Cost Program Reforms

In November 2012, FCC also began collecting study area boundary data 

from incumbent carriers and is in the process of reconciling overlaps and 

gaps in the submissions. Additionally, FCC presented data on CAF and 

Mobility Fund Phase I funds and potential locations where carriers will 

use those funds in interactive, online maps. FCC’s map for the first round 

of CAF Phase I funding allows interested parties to see which states 

received funds, the total amount of funds received in that state, and the 

number of locations, counties, and census blocks receiving support.41 The 

Mobility Fund Phase I map42 and the map for the second round of CAF 

Phase I43 present similar information. Consumer representatives told us 

that the interactive maps are helpful steps in the right direction and that 

FCC should present more information like this. FCC also presented CAF 

Phase I and other information in its March 2014 report on the impact of 

FCC’s reforms on incumbent carriers.44

While these are positive steps, FCC has not indicated what high-cost 

program information it will make available on a regular basis in the future. 

As of April 2014, FCC officials said FCC has not decided what information 

it will provide on the results of the funding for CAF Phase II, Mobility Fund 

Phase II, and funds provided to rate-of-return carriers, in part due to the 

fact that final rules regarding the reforms have not been finalized. 

Additionally, while FCC’s maps presented information on the amount of 

funds received by state and the number of locations, counties, and 

census blocks receiving support, FCC has not decided at what 

geographic levels it will present information in the future. Finally, FCC 

officials stated that the March 2014 report was a one-time report and that 

as of April 2014, FCC did not have plans to produce similar reports in the 

future. However, FCC officials stated that FCC was considering 

For example, the report provides 

estimates of the number of people that carriers will serve using CAF 

Phase I funds and compares other information by state and by the type of 

carrier (i.e., price-cap or rate-of-return).

 41See http://www.fcc.gov/maps/connect-america-fund-caf-phase-i (accessed Apr. 16, 

2014).

42See http://apps.fcc.gov/auction901/map/auction_result_ext.html (accessed Apr. 16, 

2014).

43See http://www.fcc.gov/maps/connect-america-fund-phase-i-round-two (accessed Apr. 

16, 2014).

44FCC, Universal Service Implementation Progress Report WC Docket No. 10-90

(Washington, D.C.: Mar. 18, 2014).
Page 25 GAO-14-587 USF High-Cost Program Reforms

incorporating elements of this report into the annual USF Monitoring 

Report but will likely not make decisions about what analysis it will 

conduct and how it will present that information until after September 

2014; that is, after its first round of new data on broadband deployment 

and carrier 5-year build-out plans and progress reports are due.

Our survey of state utility commissions in all 50 states and the District of 

Columbia showed that few states reported making changes thus far to 

their state high-cost service programs as a result of the reforms FCC 

adopted in the USF Transformation Order.45

 45States and the District of Columbia submitted responses to our survey from January 

through February 2014, thus their responses to our survey reflect information up to that 

time unless otherwise specified.

Of the 24 states that 

reported having a state high-cost service program, only 4 reported 

making changes to that program either wholly or in part because of FCC’s 

reforms. Only one state that reported not having a state high-cost service 

program—Mississippi—said that it had pending legislation to create one 

either wholly or in part because of FCC’s reforms. In April 2014, this 

legislation failed to pass and, as of May 2014, it is unclear if the 

legislation will be reintroduced. Seven states with a program reported that 

they are still considering making changes wholly or in part as a result of 

the reforms, and 2 states that reported not having a program—Missouri 

and Vermont—reported that they are studying the need for one. (See fig. 

4.)

Few States Reported 

Making Changes to 

Their State High-Cost 

Service Programs 

Thus Far as a Result 

of FCC’s 2011 USF 

Reforms
Page 26 GAO-14-587 USF High-Cost Program Reforms

Figure 4: States That Changed Their High-Cost Service Programs Wholly or in Part Because of FCC’s Universal Service 

Fund’s Transformation Order Reforms, as of February 2014

Note: States and the District of Columbia submitted responses to our survey from January through 

February 2014, thus their responses to our survey reflect information up to that time.

Specifically, four states made the following changes to their state 

programs either wholly or in part because of FCC’s reforms:
Page 27 GAO-14-587 USF High-Cost Program Reforms

• Georgia reported that it made changes related to the intercarrier 

compensation portion of FCC’s USF Transformation Order reforms.46

• Illinois reported that it took expected changes to federal high-cost 

funding levels into account when setting the state’s funding levels, 

among other things. This action was done carrier by carrier; thus, 

funds increased or decreased for each carrier based upon how much 

funding the carrier received from the federal high-cost program.

• Kansas passed legislation prohibiting rate-of-return carriers from 

using state funding to offset any loss in federal universal service 

funding. The legislation also sets a $30 million cap on the state’s 

funding to these carriers and phases out competitive ETC support 

over 4 years. This law became effective July 1, 2013.

• Washington reported that it is transitioning to a new fund that will 

increase support from about $1 million in 2012, up to $5 million per 

year for 2014 through 2018. Washington also reported that its new 

fund is intended to provide direct support to small incumbent carriers 

in the state to help them adjust to changes resulting from FCC’s 

reforms.

The seven states considering making changes reported prospective 

changes ranging from reconsidering the amount of funds that their state’s 

program should provide, to transitioning to a fund that supports advanced 

services. Examples include:

• California reported that it initiated a rulemaking to consider a number 

of items related to the state’s high-cost service program. As part of the 

rulemaking, California is reviewing (1) the amount of program funds it 

should provide in the future, (2) alternative program models to 

consider, and (3) opening the rate-of-return carriers’ service territories 

to competition, among other things.

• In May 2014, Colorado passed legislation that creates a new fund to 

support broadband deployment in unserved areas, in addition to the 

state’s current high-cost fund. The Colorado Public Utilities 

 46As previously noted, this report does not address FCC’s reform efforts related to 

intercarrier compensation.
Page 28 GAO-14-587 USF High-Cost Program Reforms

Commission will be reviewing its program rules to consider a number 

of items.

• Illinois is discussing with interested parties whether and how a longterm replacement to its current interim program should account for 

FCC’s reforms.

• Indiana considered whether to change its state program shortly after 

FCC released the USF Transformation Order but decided that it 

needed a better understanding of the long-term effects of FCC’s 

reforms on Indiana’s rural carriers. Thus far, it has not eliminated the 

possibility of changing the program.

• New Mexico is considering a number of changes to its state program. 

As previously described, carriers often pay their contributions to the 

federal and state high-cost programs by charging their customers. 

Among other things, New Mexico is considering establishing a cap on

the surcharge carriers can charge customers and establishing flexible 

broadband build-out awards that could include mobile broadband 

providers.

Although states cited a wide variety of effects the reforms have had on 

their states, the most frequent responses were that there have been no 

effects yet, that it is too early to tell, or that the implications are still 

unknown. Twenty-one states and the District of Columbia reported this 

response. For instance, Iowa reported that the implications of the reforms 

are still being unveiled as FCC continues implementing them, and Oregon 

reported that it is too early to ascertain actual effects, in part due to the 

legal challenges to FCC’s reforms.47

• Nine states said that the reforms have either reduced carrier support 

in their states or that carriers are concerned about possible support 

reductions.

The other most frequently reported 

effects were mixed, as follows:

48

 47As noted earlier, the legal challenges to FCC’s authority under the USF Transformation 

Order were resolved in favor of FCC in a court decision by the 10th Circuit of the U.S. 

Court of Appeals in May 2014. 

For instance, Mississippi reported that carriers that 

invested in facilities with the expectation that they would receive 

48Reduced support as a result of the reforms could be due to a variety of reasons, 

including, as previously described, the elimination of identical support.
Page 29 GAO-14-587 USF High-Cost Program Reforms

funding from the federal high-cost program are negatively affected by 

having that funding reduced.

• Seven states reported that carriers have increased or may increase 

the rates they charge customers for their service, with most of these 

states citing FCC’s establishment of a local rate floor that carriers that 

are receiving high-cost support must meet.49 For instance, Arizona 

reported that six companies that received federal high-cost funds 

have increased their rates in each of the last 2 years to meet the local 

rate’s floor.

• Six states expressed concern about the effects of the reforms on 

carriers’ investment in their state, with another four expressing 

concern over the effects the reforms will have on carriers’ ability to 

provide service to their customers. For instance, Montana reported 

that loss of federal high-cost funding has caused wireless carriers to 

stop their deployment of cellular service in remote areas of Montana, 

and Pennsylvania reported that it is concerned that loss of federal

funding may undermine small carriers’ ability to provide service.

• Six states said that the reforms will or could result in additional 

broadband deployment, with most of these citing CAF.

• Four states reported that the reforms could or already have increased 

the demand for funds from their state program. For instance, Nevada 

reported that FCC’s reforms have increased the number of requests 

for funding from its state program, and Oklahoma reported that FCC’s 

reforms have put more pressure on its state program because 

Oklahoma’s statutes permit any reduction in federal high-cost funding 

to be replaced by Oklahoma’s state program.

In 2011, FCC undertook the difficult task of reforming the high-cost 

program to support broadband service and has made progress 

implementing some of these reforms. As FCC continues to implement its 

reforms, it is important that it be able to empirically evaluate the high-cost 

program, demonstrate its effectiveness, and assess potential 

shortcomings, rather than, as we concluded in our 2012 report, assume 

that the program’s subsidies going to carriers are positively affecting 

 49FCC established local rate floors to ensure that universal service funding is not 

subsidizing artificially low local rates in rural areas.

Conclusions
Page 30 GAO-14-587 USF High-Cost Program Reforms

subscribership without collecting data to support that assumption. It is 

also important, as FCC stated in its USF Transformation Order, that 

funding recipients be held accountable for their use of billions of dollars of 

the public’s money. However, FCC has a limited ability to evaluate the 

program, demonstrate its effectiveness, or hold funding recipients 

accountable. In particular, FCC does not demonstrate how carriers use 

the funds they receive or the results of that funding because FCC 

traditionally has not collected such data. FCC’s current voice and 

broadband availability performance measures also do not demonstrate 

results because these measures do not link the outcomes that are being 

measured to the high-cost program itself. Furthermore, FCC has not 

traditionally presented USF data and information in a manner that is easy 

and accessible for interested parties to use or at a geographic level that 

would allow them to draw conclusions about areas subsidized by the 

program. Although FCC officials said that FCC is committed to providing 

USF information in the most user-friendly format possible and is 

considering ways to improve reporting, it nevertheless remains difficult for 

interested parties to use the information in meaningful ways, such as by

• making connections between the different sources of data,

• drawing conclusions about the program,

• using the data and information to inform policy decision making, and

• determining what was gained from the money paid to USF.

By improving the transparency and accountability of USF high-cost 

spending, FCC could better understand the effects of the reforms, 

determine the reforms that were most successful in efficiently enhancing 

broadband availability, service quality, and capacity, identify areas for 

improvement, and ensure the data it collects will inform current and future 

reforms.

In July 2012, we recommended that FCC establish a specific dataanalysis plan for the carrier data the FCC planned to collect related to the 

high-cost program and make the information publicly available.50

 50

FCC has 

not yet developed such a data-analysis plan; we continue to believe that 

this recommendation has merit and should be fully implemented to help 

FCC determine the overall effectiveness of the Connect America Fund, as 

well as improve the oversight and transparency of the high-cost program.

GAO-12-738.
Page 31 GAO-14-587 USF High-Cost Program Reforms

To improve accountability and transparency of the high-cost program, the 

Chairman of FCC should demonstrate how high-cost funds were used to 

improve broadband availability, service quality, and capacity at the 

smallest geographic area possible, such as by conducting analyses of 

carrier data and publicly reporting this information, at least annually, in a 

manner that is easy and accessible for interested parties to use.

We provided a draft of this report to FCC for its review and comment. 

FCC provided written comments (reprinted in app. IV) and technical 

comments, which we incorporated as appropriate. In its written 

comments, FCC stated that it agreed with our recommendation and noted 

that it will actively seek to improve the transparency and accessibility of 

the data it collects and explore mechanisms to present the data in userfriendly formats. For example, to address our recommendation, FCC 

intends to make key statistics available in an aggregated form for the 

general public and report additional data on FCC’s website so that the 

information is more accessible. Further, FCC stated it intends to analyze, 

aggregate, and report carrier-submitted data on a granular level to permit 

FCC and the public to determine whether carriers are providing 

broadband in a manner that comports with CAF’s goals and obligations.

We are sending copies of this report to the FCC Chairman and 

appropriate congressional committees. In addition, the report is available 

at no charge on our website at http://www.gao.gov.

If you or your staff have any questions concerning this report, please 

contact me at (202) 512-2834 or goldsteinm@gao.gov. Contact points for 

our Offices of Congressional Relations and Public Affairs may be found 

on the last page of this report. Key contributors to this report are listed in 

appendix V.

Mark L. Goldstein

Director, Physical Infrastructure Issues

Recommendation for 

Executive Action

Agency Comments
Page 32 GAO-14-587 USF High-Cost Program Reforms

List of Requesters

The Honorable Rob Bishop

House of Representatives

The Honorable Bruce Braley

House of Representatives

The Honorable Larry Bucshon

House of Representatives

The Honorable Bill Cassidy

House of Representatives

The Honorable Howard Coble

House of Representatives

The Honorable Mike Coffman

House of Representatives

The Honorable Tom Cole

House of Representatives

The Honorable K. Michael Conaway

House of Representatives

The Honorable Tom Cotton

House of Representatives

The Honorable Kevin Cramer

House of Representatives

The Honorable Rick Crawford

House of Representatives

The Honorable Peter DeFazio

House of Representatives

The Honorable Scott DesJarlais, M.D.

House of Representatives

The Honorable Sean Duffy

House of Representatives
Page 33 GAO-14-587 USF High-Cost Program Reforms

The Honorable Jeff Duncan

House of Representatives

The Honorable Blake Farenthold

House of Representatives

The Honorable John Fleming, M.D.

House of Representatives

The Honorable Cory Gardner

House of Representatives

The Honorable Chris Gibson

House of Representatives

The Honorable Sam Graves

House of Representatives

The Honorable Tim Griffin

House of Representatives

The Honorable Morgan Griffith

House of Representatives

The Honorable Brett Guthrie

House of Representatives

The Honorable Vicky Hartzler

House of Representatives

The Honorable Richard Hanna

House of Representatives

The Honorable Doc Hastings

House of Representatives

The Honorable Jaime Herrera Beutler

House of Representatives

The Honorable Ron Kind

House of Representatives
Page 34 GAO-14-587 USF High-Cost Program Reforms

The Honorable Steve King

House of Representatives

The Honorable Doug Lamborn

House of Representatives

The Honorable Dave Loebsack

House of Representatives

The Honorable Billy Long

House of Representatives

The Honorable Frank D. Lucas

House of Representatives

The Honorable Blaine Luetkemeyer

House of Representatives

The Honorable Cynthia Lummis

House of Representatives

The Honorable Luke Messer

House of Representatives

The Honorable Markwayne Mullin

House of Representatives

The Honorable Randy Neugebauer

House of Representatives

The Honorable Kristi Noem

House of Representatives

The Honorable Rick Nolan

House of Representatives

The Honorable Bill Owens

House of Representatives

The Honorable Steve Pearce

House of Representatives
Page 35 GAO-14-587 USF High-Cost Program Reforms

The Honorable Ed Perlmutter

House of Representatives

The Honorable Collin C. Peterson

House of Representatives

The Honorable Tom Petri

House of Representatives

The Honorable Jared Polis

House of Representatives

The Honorable Reid Ribble

House of Representatives

The Honorable Tom Rice

House of Representatives

The Honorable Harold Rogers

House of Representatives

The Honorable Kurt Schrader

House of Representatives

The Honorable Adrian Smith

House of Representatives

The Honorable Lamar Smith

House of Representatives

The Honorable Steve Stockman

House of Representatives

The Honorable Lee Terry

House of Representatives

The Honorable Mac Thornberry

House of Representatives

The Honorable Scott Tipton

House of Representatives
Page 36 GAO-14-587 USF High-Cost Program Reforms

The Honorable David G. Valadao

House of Representatives

The Honorable Tim Walberg

House of Representatives

The Honorable Tim Walz

House of Representatives

The Honorable Melvin L. Watt

House of Representatives

The Honorable Peter Welch

House of Representatives

The Honorable Ed Whitfield

House of Representatives

The Honorable Steve Womack

House of Representatives

The Honorable Don Young

House of Representatives
Appendix I: Objectives, Scope, and 

Methodology

Page 37 GAO-14-587 USF High-Cost Program Reforms

This report examines (1) the extent to which FCC implemented the 

funding reforms adopted in the USF Transformation Order, and 

stakeholders’ views on FCC’s efforts, (2) the extent to which FCC is 

collecting data to determine the effectiveness of these reforms and how 

FCC intends to ensure that the data collected will inform current and 

future reforms, and (3) what changes, if any, states have made to their 

state universal service funds since FCC adopted the reforms in 2011. In 

the USF Transformation Order, FCC focused on repurposing the USF 

high-cost program to support broadband; thus, we focused on the highcost program funding reforms in the USF Transformation Order. Although 

FCC also made changes to intercarrier compensation in the USF 

Transformation Order, we did not review FCC’s reform efforts related to 

intercarrier compensation. Intercarrier compensation refers to the charges 

that one carrier pays to another carrier to originate, transport, and/or 

terminate telecommunications traffic. The intercarrier compensation 

regimes are governed by a different system of federal and state rules 

than those of universal services; therefore, we decided not to review 

intercarrier compensation. Specifically, we focused on four industry-wide 

reforms and four carrier-specific reforms, which we selected because 

those were the funding reforms we identified and reported on during our 

prior review of the high-cost program in 2012.1

To review the extent to which FCC implemented the funding reforms 

adopted in its USF Transformation Order, we reviewed FCC 

documentation and interviewed FCC officials. Specifically, we reviewed 

the USF Transformation Order to determine the implementation timelines 

and deadlines FCC established. To ascertain steps FCC has taken to 

implement the reforms, whether it clarified or modified its timelines, and 

factors affecting implementation, we reviewed relevant orders, further 

notices of proposed rulemakings, and public notices that FCC issued after 

releasing the USF Transformation Order. We also reviewed other FCC 

documents, such as presentations to stakeholders, press releases, 

statements from FCC Commissioners, and other related items provided 

 1

GAO-12-738. As this report shows, the reforms we focused on were (1) eliminating 

identical support, (2) eliminating 100 percent overlap, (3) establishing a $250 monthly per 

line support cap, (4) establishing public interest obligations, (5) Connect America Fund 

Phases I and II, (6) Mobility Fund Phases I and II, (7) limits on capital and operating 

expenses for rate-of-return carriers, and (8) the Remote Areas Fund.

Appendix I: Objectives, Scope, and 

Methodology
Appendix I: Objectives, Scope, and 

Methodology

Page 38 GAO-14-587 USF High-Cost Program Reforms

by FCC officials and on FCC’s website.2 We interviewed FCC officials 

from the Wireline Competition Bureau, Wireless Telecommunications 

Bureau, and Office of General Counsel to further understand and clarify 

FCC’s actions and the factors affecting implementation. We compared 

FCC’s actions to the timelines and deadlines it established. To obtain 

stakeholder views on FCC’s efforts, we interviewed associations that 

represent different types of telecommunications carriers (such as large 

and small carriers, incumbent and competitive carriers, and wireless 

carriers), cable providers, state utility commissions, and consumers. We 

also reviewed documentation that these associations provided to us, such 

as comments they filed with FCC, studies and reports that they or others 

conducted, and presentations. We identified these associations based on 

our prior reports as well as filings with FCC regarding the USF 

Transformation Order. Table 1 contains a list of the industry stakeholders 

we contacted.

 2

For example, see http://www.fcc.gov/encyclopedia/price-cap-resources, 

http://www.fcc.gov/encyclopedia/rate-return-resources, and 

http://wireless.fcc.gov/auctions/default.htm?job=auction_summary&id=901 (accessed Apr.

16, 2014).
Appendix I: Objectives, Scope, and 

Methodology

Page 39 GAO-14-587 USF High-Cost Program Reforms

Table 1: Industry Stakeholders Contacted

Industry group name Representation

Competitive Carriers Association (CCA) Represents competitive wireless carriers and stakeholders.

Competitive Communications Association (Comptel) Represents competitive communications service providers and their 

supplier partners.

CTIA – The Wireless Association Represents wireless carriers and their suppliers, as well as providers 

and manufacturers of wireless data services and products.

National Association of Regulatory Utility Commissioners 

(NARUC)

Represents state public service commissions that regulate utility 

services.

National Association of State Utility Consumer Advocates 

(NASUCA)

Represents the interests of utility consumers.

National Cable and Telecommunications Association 

(NCTA)

Represents cable operators, including cable companies that provide 

broadband and digital telephone service

New America Foundation Represents the public interest on a variety of issues, including 

technology and communications networks.

NTCA – The Rural Broadband Association Represents independent, community-based telecommunications 

companies that serve rural areas and small towns.

United States Telecom Association (USTelecom) Represents telecommunications service providers and suppliers, with 

members ranging from large publically traded communications 

corporations to small companies and cooperatives.

Source: GAO and industry information. | GAO-14-587

To evaluate the extent to which FCC is collecting data to determine the 

effectiveness of its high-cost program reforms and how FCC intends to 

ensure that the data collected will inform current and future reforms, we 

reviewed documentation and conducted interviews. Specifically, we 

reviewed FCC documentation and online materials to evaluate FCC’s 

data collection, analysis, usage, reporting, and presentation, and to learn 

about changes to these elements. For example, we reviewed:

• key forms that FCC uses to collect data from carriers, such as Form 

477 (Local Telephone Competition and Broadband Reporting), Form 

481 (Carrier Annual Reporting Data Collection Form), Form 499-A 

(Annual Telecommunications Reporting Worksheet), and Form 690 

(Mobility Fund Phase I Annual Report);

• reports related to broadband and USF, such as the Internet access 

service reports,3 broadband progress reports,4

 3

For most recent report, see, FCC, Internet Access Services: Status as of December 31, 

2012 (Washington, D.C.: December 2013).

National Broadband 
Appendix I: Objectives, Scope, and 

Methodology

Page 40 GAO-14-587 USF High-Cost Program Reforms

Plan,

5 FCC’s March 2014 report on the impact of their reforms on 

incumbent carriers,6 and its USF monitoring reports;

• the USF Transformation Order—including the performance goals and 

measures FCC established for the high-cost program in this order—

and other relevant orders, further notices of proposed rulemakings, 

and public notices that FCC issued after releasing the USF 

Transformation Order; and

• FCC’s website overall, and specific material on FCC’s website related 

to the reforms, such as the online maps displaying information on the 

first phases of the Connect America Fund and the Mobility Fund, and 

on FCC’s efforts to collect data on carriers’ service area boundaries.

We also interviewed FCC officials, as described above, to learn more 

about their efforts and reviewed other data they provided us during these 

interviews. We also reviewed material from the Universal Service 

Administrative Company (USAC), which is the non-profit corporation that 

administers FCC’s USF programs, and interviewed USAC officials. For 

example, we reviewed sample audits of high-cost funding recipients and 

USAC’s website, including its online high-cost funding Disbursement 

Tool. We also interviewed officials from the National Exchange Carrier 

Association—a non-profit association established by FCC to perform 

telephone industry tariff filings and revenue distributions—to learn about 

its role in FCC’s efforts. We compared FCC’s efforts with reports and 

guidance we published7 related to program transparency and 

accountability and public data presentation—in particular, our findings 

related to federal data transparency lessons learned and the 

implementation of electronic government provisions—as well as relevant 

material from the Office of Management and Budget (OMB), such as its 

2005 assessment of the high-cost program8

 4

For most recent report, see, FCC, Eighth Broadband Progress Report, FCC 12-90 

(Washington, D.C.: Aug. 21, 2012).

and 2012 digital government 

5

FCC, Connecting America: The National Broadband Plan (Washington, D.C.: Mar. 16, 

2010).

6

FCC, Universal Service Implementation Progress Report WC Docket No. 10-90

(Washington, D.C.: Mar. 18, 2014).

7

For example, see GAO-13-758, GAO-12-782, and GAO-14-64.

8

OMB, Program Assessment – Universal Service Fund High Cost

http://www.whitehouse.gov/sites/default/files/omb/assets/OMB/expectmore/detail/1000445

1.2005.html (accessed Apr. 16, 2014). 
Appendix I: Objectives, Scope, and 

Methodology

Page 41 GAO-14-587 USF High-Cost Program Reforms

strategy.9 We also reviewed our prior reports related to the high-cost 

program10 and reports from the Congressional Research Service.11

To review what changes, if any, states have made to their state universal 

service funds since FCC adopted its high-cost program reforms in 2011, 

we surveyed all 50 states and the District of Columbia and analyzed the 

responses. The survey included questions about changes states made to 

their state high-cost programs wholly or in part because of FCC’s reforms, 

changes states are considering making, and how FCC’s reforms have 

affected states, among other things. See appendix II for a copy of the 

survey. To ensure that our survey questions and skip pattern were clear 

and logical, that states could answer the questions without undue burden, 

and to obtain suggestions, we pretested our survey with five states: 

Arkansas, Maine, Maryland, Tennessee, and Texas. We selected the 

pretest states to provide for variation in program characteristics and 

geographic location. We emailed our survey to staff at each of the state 

utility commissions. We identified contacts to email our survey to with the 

help of NARUC, which is the non-profit, national association that 

represents the state regulatory utility commissions, and took steps to 

verify the contacts NARUC provided. We reviewed the survey responses 

for completeness and, as necessary, sent follow-up emails and made 

follow-up telephone calls to clarify responses. We received responses 

from all 50 states and the District of Columbia, for a 100 percent response 

rate. We administered the survey from January through February 2014.

To 

learn about their views on FCC’s efforts, we interviewed the industry 

stakeholders identified in table 1 above.

We conducted this performance audit from August 2013 to July 2014 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

 9

OMB, Digital Government: Building a 21st Century Platform to Better Serve the American 

People (Washington, D.C.: May 23, 2012).

10GAO-12-738; GAO, Telecommunications: FCC Needs to Improve Performance 

Management and Strengthen Oversight of the High-Cost Program, GAO-08-633

(Washington, D.C.: June 13, 2008); and GAO, Telecommunications: Federal and State 

Universal Service Programs and Challenges to Funding, GAO-02-187 (Feb. 4, 2002).

11For example, see Congressional Research Service, Broadband Internet Access and the 

Digital Divide: Federal Assistance Programs, RL30719 (Washington, D.C.: July 17, 2013).
Appendix I: Objectives, Scope, and 

Methodology

Page 42 GAO-14-587 USF High-Cost Program Reforms

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.
Appendix II: Copy of Survey to State Utility 

Commissions

Page 43 GAO-14-587 USF High-Cost Program Reforms

Appendix II: Copy of Survey to State Utility 

Commissions
Appendix II: Copy of Survey to State Utility 

Commissions

Page 44 GAO-14-587 USF High-Cost Program Reforms
Appendix II: Copy of Survey to State Utility 

Commissions

Page 45 GAO-14-587 USF High-Cost Program Reforms
Appendix II: Copy of Survey to State Utility 

Commissions

Page 46 GAO-14-587 USF High-Cost Program Reforms
Appendix III: Additional Information on USF 

and the High-Cost Program

Page 47 GAO-14-587 USF High-Cost Program Reforms

USF is comprised of four different programs designed to ensure access to 

affordable communications for schools, libraries, health care providers, 

and rural and low-income consumers. One of these programs—the highcost program, which is the focus of this report—provides subsidies to 

telecommunications carriers that provide telecommunications services in 

rural, insular, and other remote areas where the costs of providing service 

is high. Table 2 describes the four universal service programs and table 3 

shows the performance goals and measures for the high-cost program in 

particular.

Table 2: USF Programs

Program Description 

High-cost Assists customers living in high-cost, rural, or insular areas through financial support to telephone 

carriers, thereby lowering rates for local and long-distance service. 

Schools and libraries

(federal E-Rate program) 

Assists eligible schools and libraries through discounted telecommunications and information 

services. Discounts available for local and long-distance telephone service, Internet access, and 

internal connection projects. 

Low income Assists qualifying low-income customers through discounted installation and monthly telephone 

services and free toll limitation service. 

Rural health care Assists health care providers located in rural areas through discounts for telecommunications and 

Internet access services. Discounts are provided to make rates for facilities in rural areas reasonably 

comparable to those in nearby urban areas. 

Source: GAO based on FCC information. | GAO-14-587

Table 3: FCC’s High-Cost Program Performance Goals and Measures

Goals Measures 

Preserve and advance universal availability of 

voice service. 

FCC will use the telephone penetration rate, which measures subscription to 

telephone service. 

Ensure universal availability of voice and 

broadband to homes, businesses, and community 

anchor institutions. 

FCC will collect the number of residential, business, and community anchor 

institution locations that newly gain access to broadband services. As an 

efficiency measure, FCC will use the change in the number of homes, businesses, 

and community anchor institutions passed or covered per million USF dollars 

spent. 

Minimize the universal service contribution burden 

on consumers and businesses. 

FCC will divide the amount of the total inflation-adjusted expenditures of the highcost program and Connect America Fund each year by the number of American 

households and measure it as a monthly dollar figure. 

Ensure universal availability of mobile voice and 

broadband where Americans live, work, and 

travel. 

FCC has not yet developed measures for this goal. 

Ensure reasonably comparable rates for voice and 

broadband services in all regions of the nation. 

FCC has not yet developed measures for this goal. 

Source: GAO based on FCC information. | GAO-14-587

Appendix III: Additional Information on USF 

and the High-Cost Program
Appendix IV: Comments from the Federal 

Communications Commission

Page 48 GAO-14-587 USF High-Cost Program Reforms

Appendix IV: Comments from the Federal 

Communications Commission
Appendix IV: Comments from the Federal 

Communications Commission

Page 49 GAO-14-587 USF High-Cost Program Reforms
Appendix IV: Comments from the Federal 

Communications Commission

Page 50 GAO-14-587 USF High-Cost Program Reforms
Appendix V: GAO Contact and Staff 

Acknowledgments

Page 51 GAO-14-587 USF High-Cost Program Reforms

Mark Goldstein, (202) 512-2834 or goldsteinm@gao.gov

In addition to the individuals named above, Sally Moino, Assistant 

Director; Pedro Almoguera; David Hooper; Josh Ormond; Nalylee Padilla; 

Amy Rosewarne; Kelly Rubin; and Nancy Zearfoss made key 

contributions to this report.

Appendix V: GAO Contact and Staff 

Acknowledgments

GAO Contact

Staff 

Acknowledgments

(543331)
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