TELECOMMUNICATIONS

FCC Has Reformed the 

High-Cost Program, but 

Oversight and 

Management Could be 

Improved

Report to Congressional Requesters

July 2012

GAO-12-738

United States Government Accountability Office

GAO
United States Government Accountability Office

Highlights of GAO-12-738, a report to 

congressional requesters

July 2012

TELECOMMUNICATIONS

FCC Has Reformed the High-Cost Program, but 

Oversight and Management Could be Improved

Why GAO Did This Study

The high-cost program within the 

Universal Service Fund (USF) provides 

subsidies to telecommunications 

carriers that serve rural and other 

remote areas with high costs of 

providing telephone service. The 

annual program cost has grown from 

$2.6 billion in 2001 to over $4 billion in 

2011, primarily funded through fees 

added to consumers’ phone bills. The 

program is managed by the Federal 

Communications Commission (FCC), 

which noted that providing universal 

access to broadband is “the universal 

service challenge of our time.” 

Accordingly, FCC made changes to the

program to make funds available to 

support both telephone and 

broadband. GAO previously reported 

that using USF monies for broadband 

could cause the size of the fund to 

greatly expand unless FCC improved 

its management and oversight to 

ensure the program’s costeffectiveness. This requested report 

examines FCC’s (1) plans for 

repurposing the high-cost program for 

broadband, and (2) plans to address 

previously identified management 

challenges as it broadens the 

program’s scope. GAO reviewed and 

analyzed pertinent FCC orders, 

associated stakeholder comments, and 

reports related to USF and interviewed 

federal and industry stakeholders, as 

well as economists and experts.

What GAO Recommends

FCC should (1) establish a specific 

data-analysis plan for carrier data to 

determine program effectiveness, and 

(2) consult with the Joint Board as it

examines the factors for calculating

carrier support payments. FCC 

concurred with the recommendations 

and provided technical comments.

What GAO Found

Under the USF Transformation Order, FCC adopted new rules to fundamentally 

change the high-cost program by extending the program to support broadband 

capable networks. For example, FCC established a $4.5-billion annual program 

budget for the next 6 years, created new funds—called the Connect America 

Fund and the Mobility Fund—that will support broadband deployment, and 

established public interest obligations for the carriers as a condition of receiving 

funds. Specifically, FCC will require carriers to offer broadband services in their 

supported service areas, meet certain broadband performance requirements, 

and report regularly on associated broadband performance measures. FCC also 

changed its method for distributing funds to carriers to address some of the 

recognized inefficiencies with the program. According to FCC, these changes will 

allow it to reduce high-cost support for carriers providing only voice services and 

make funds available to carriers to offer both voice and broadband services.

FCC has taken several steps to address previously identified oversight and 

management challenges that GAO and the Office of Management and Budget 

(OMB) have raised in the last 7 years, but issues remain. Management 

challenges identified by GAO included a lack of performance goals and 

measures for the program and weak internal controls, while OMB criticized 

FCC’s inability to base funding decisions on measurable benefits. In response, 

FCC established performance goals and measures for the high-cost program and 

improved internal control mechanisms over the fund. While these are noteworthy 

actions, GAO identified gaps in FCC’s plans to better oversee the program and 

make it more effective and efficient. In particular, FCC has not addressed its 

inability to determine the effect of the fund and lacks a specific data-analysis plan 

for carrier data it will collect. Such analysis would enable FCC to adjust the size 

of the Connect America Fund based on data-driven evaluation and would allow 

Congress and FCC to make better informed decisions about the program’s future 

and how program efficiency could be improved. 

GAO also found that FCC lacks a mechanism to link carrier rates and revenues 

with support payments. A requirement in statute is for rates for 

telecommunications services to be reasonably comparable in rural and urban 

areas, but FCC has noted that some rural carriers are offering basic local rates 

for telephone services that are lower than the average basic rate paid by urban 

consumers. FCC has stated that it is not equitable for all consumers to subsidize 

the cost of service for some consumers who pay local service rates that are 

significantly lower than the national average and has therefore instituted an 

incentive mechanism for carriers to increase artificially low consumer rates. 

Although FCC would like to prevent consumers from subsidizing carriers that 

offer service at artificially low rates, its incentive mechanism to raise rural rates 

will not reduce the financial burden placed on all consumers as there is currently 

no connection between the support payments a carrier receives and the carrier’s 

rates and revenues. The Federal-State Joint Board on Universal Service

recommended that FCC consider a carrier’s revenues when calculating its need 

for support payments, but in the past, FCC declined to implement this 

recommendation. FCC is developing a new model to calculate carrier support, 

but has not stated what factors will be included.

View GAO-12-738. For more information, 

contact Mark Goldstein at (202) 512-2834 or 

goldsteinm@gao.gov. 
Page i GAO-12-738 Repurposing USF for Broadband Deployment

Letter 1 

Background 4

FCC Aims to Improve Efficiency and Provide Support for 

Broadband through Changes to the High-Cost Program 8

FCC Has Taken Steps to Address Previously Identified Oversight 

and Management Challenges, but Issues Remain 15

Conclusions 23

Recommendations for Executive Action 25

Agency Comments 25

Appendix I Objectives, Scope, and Methodology 27

Appendix II Comments from the Federal Communications Commission 30

Appendix III Federal Communications Commission’s Action to Implement National 

Broadband Plan Recommendations Related to the Universal Service 

Fund and Implement the USF Transformation Order 34

Appendix IV GAO Contact and Staff Acknowledgments 39

Related GAO Products 40

Tables

Table 1: Summary of Current Universal Service Fund Programs 6

Table 2: General Roles of Agencies and Organizations Involved in 

High-Cost Program Administration 7

Table 3: FCC’s Performance Goals and Measures for the High-Cost 

Program 17

Table 4: List of Telecommunications Industry Stakeholders and 

Economists Contacted 28

Table 5: Status of FCC Actions to Implement Recommendations 

from the National Broadband Plan 34

Contents
Page ii GAO-12-738 Repurposing USF for Broadband Deployment

Table 6: Key Actions and Timeline for Implementing the USF 

Transformation Order 36

Abbreviations 

FCC Federal Communications Commission

Joint Board Federal-State Joint Board on Universal Service 

OMB Office of Management and Budget

NASUCA National Association of State Utility Consumer Advocates

NECA National Exchange Carrier Association

USAC Universal Service Administrative Company

USF Universal Service Fund 

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Page 1 GAO-12-738 Repurposing USF for Broadband Deployment

United States Government Accountability Office

Washington, DC 20548

July 25, 2012

The Honorable Henry A. Waxman

Ranking Member

Committee on Energy and Commerce

House of Representatives

The Honorable Anna G. Eshoo

Ranking Member

Subcommittee on Communications and Technology

Committee on Energy and Commerce

House of Representatives

The Honorable Edward J. Markey

House of Representatives

Federal policy has long called for making affordable residential telephone 

service available to the greatest possible number of Americans—a policy 

known as “universal service.” The nation’s Universal Service Fund (USF), 

managed by the Federal Communications Commission (FCC), includes 

four programs that subsidize telecommunications carriers that provide 

telephone and other communications services. Since 1998, USF has 

distributed about $81.7 billion to carriers in all 50 states, the District of 

Columbia, and all U.S. territories. The USF programs are funded through 

mandatory payments from companies providing telecommunications 

services—payments usually passed along to consumers as a line item 

fee on their telephone bill. The USF program with the largest amount of 

annual expenditures, the high-cost program, provides subsidies to 

telecommunications carriers that serve rural, remote, and other areas 

where the costs of providing telephone service are high.1

 

1

The high-cost program is the subject of this report. The other three USF programs 

subsidize telecommunication carriers that serve low-income consumers, schools and 

libraries, and rural health care providers. For more information on the USF programs, see 

the “related products” page at the end of this report.

By providing 

support to carriers, the high-cost program allows the carriers to charge 

lower telephone rates than otherwise would be available to customers in 

those areas. In the past few years, significant growth of the fund has 

raised concerns about what the program is accomplishing, whether the 

fund can be sustained over the long term, and the cost burden it imposes 

 
 

Page 2 GAO-12-738 Repurposing USF for Broadband Deployment

on consumers. Much of the increase in USF has been the result of growth 

in the high-cost program. In particular, the annual amount of money 

disbursed by the high-cost program has increased 54 percent in the last 

decade, growing from $2.6 billion in 2001 to over $4 billion in 2011.

While the high-cost program has traditionally supported telephone 

service, FCC adopted new program rules to enable program funds to 

support both telephone and broadband deployment. Broadband service is 

increasingly viewed as a critical component of the nation’s physical 

infrastructure and a key driver of economic growth. Both the current and 

former Presidents and Congress have recognized that important policy 

goals are to ensure the universal availability of infrastructure necessary to 

provide broadband service and the ability of all citizens to subscribe to it. 

In early 2009, Congress directed FCC to develop a broadband plan to 

ensure that every American has access to broadband capability.2

Congress required that this plan include a detailed strategy for achieving 

affordability and maximizing use of broadband. In March 2010, an FCC 

task force issued the National Broadband Plan, which recommended 

reforming USF so that it could support both telephone and broadband 

service.3 The National Broadband Plan noted that 14 million Americans 

either have inadequate or no access to residential fixed broadband, and 

FCC characterized providing universal access to broadband as “the 

universal service challenge of our time.” As such, FCC has made 

changes in the distribution and use of the high-cost program funds to 

make them available to support both telephone service and broadband 

deployment. These changes are outlined in an order released in 

November 2011, in which FCC said it “comprehensively reforms and 

modernizes” the universal service system to ensure that affordable voice 

and broadband service are available throughout the nation.4

 

2

Congress required FCC to develop a broadband plan and to report annually on the state 

of broadband availability. American Recovery and Reinvestment Act, Pub. L. No. 111-5, 

§6001(k)(1), 123 Stat. 115, 515 (2009). 

However, 

there are several legal challenges to FCC’s authority to use USF monies 

for deploying broadband-capable networks.

3

Federal Communications Commission, Connecting America: The National Broadband 

Plan (Mar. 16, 2010). 

4

We refer to this order as the USF Transformation Order. Connect America Fund et al., 

WC Docket No. 10-90 et al., Report and Order and Further Notice of Proposed 

Rulemaking, 26 FCC Rcd 17663 (2011). 
 

Page 3 GAO-12-738 Repurposing USF for Broadband Deployment

We previously reported that using USF monies for broadband deployment 

could cause the size of the fund to greatly expand unless policymakers 

reexamined its purpose, design, and management, and unless FCC 

improved its management and oversight processes to ensure the 

program’s cost-effectiveness. In prior reports on FCC’s management of 

USF, we noted long-standing weaknesses, including that FCC had 

neither undertaken a data-driven approach to overseeing USF nor 

established performance goals and measures for its programs. 

Specifically related to the high-cost program, we reported in 2008 that the 

significant program growth had raised concerns about what the program 

was accomplishing, whether it had clear objectives, and whether it had 

effective controls over expenditures.5

In response to your request to assess FCC’s efforts to repurpose USF for 

broadband deployment, we examined (1) FCC’s plans for repurposing the 

USF high-cost program for broadband services and (2) how FCC is 

planning to address previously identified oversight and management 

challenges as it broadens the program’s scope.

To address these objectives, we reviewed and analyzed FCC’s 2011 USF 

Transformation Order and associated stakeholder comments and 

reviewed our past reports and academic literature related to USF. We 

also interviewed officials from FCC, the Universal Service Administrative 

Company (USAC),6 the National Exchange Carrier Association (NECA),7

and the National Association of State Utility Consumer Advocates 

(NASUCA).8

 

5

GAO, Telecommunications: FCC Needs to Improve Performance Management and 

Strengthen Oversight of the High-Cost Program, 

We met with associations representing the 

telecommunications industry and state regulatory commissions, and 

economists from academia and the telecommunications industry 

GAO-08-633 (Washington, D.C.: June 

13, 2008).

6

USAC is the not-for-profit corporation that administers USF programs under FCC’s 

direction.

7

NECA is a not-for-profit association of local telephone carriers established by FCC in 

1983 to perform telephone industry tariff filings and revenue distributions. NECA collects 

cost and line count data from its members and validates this information. 

8

NASUCA is an association of 44 consumer advocates in 40 states and the District of 

Columbia. NASUCA's members are designated by the laws of their respective jurisdictions 

to represent the interests of utility consumers before state and federal regulators and in 

the courts.
 

Page 4 GAO-12-738 Repurposing USF for Broadband Deployment

recognized for their thorough knowledge of universal service. We 

identified experts and industry stakeholders based on prior published 

literature and other stakeholders’ recommendations. We limited the scope 

of our review to the USF high-cost program because in the USF 

Transformation Order, FCC focused on repurposing the high-cost 

program to support broadband.9 We did not review FCC’s reform efforts 

related to intercarrier compensation.10

We conducted this performance audit from September 2011 to July 2012 

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.

Further details of our scope and 

methodology are provided in appendix I.

The Communications Act of 1934 first established the nation’s 

telecommunications policy, including making communications services 

available “so far as possible, to all the people of the United States.” Since 

the cost of providing telephone service in rural areas is generally higher 

than the cost of providing service in central cities of metropolitan areas, 

universal service policy has traditionally targeted financial support to rural 

and other high-cost areas. In the Telecommunications Act of 1996 (the 

1996 Act), Congress specified that consumers in “rural, insular, and highcost areas” should have access to telecommunication rates and services 

that are “reasonably comparable” to consumers in urban areas.11

 

9

In February 2012, FCC adopted new rules for another USF program that includes 

developing a pilot to determine how USF monies could be used to increase broadband 

adoption among low-income consumers. Lifeline and Link Up Reform and Modernization 

et al., Report and Order and Further Notice of Proposed Rulemaking, WC Dkt. Nos. 11-42 

et al., CC Dkt No. 96-45, FCC 12-11, para. 515 (rel. Feb. 6, 2012).

The 

1996 Act established a Federal-State Joint Board on Universal Service 

(Joint Board), which is composed of three FCC commissioners, four state 

regulatory commissioners, and a consumer advocate. The Joint Board 

10In the USF Transformation Order, FCC also reformed the intercarrier compensation 

system. Intercarrier compensation refers to a system of payments between carriers for the 

origination, transportation, and termination of telecommunications traffic. 

1147 U.S.C. § 254(b)(3).

Background 
 

Page 5 GAO-12-738 Repurposing USF for Broadband Deployment

makes recommendations to FCC on implementing the universal service 

related provisions of the 1996 Act.12 The 1996 Act also altered the federal 

mechanism for funding universal service by requiring telecommunications 

carriers and other entities providing interstate telecommunications service 

to contribute to USF, unless exempted by FCC.13 The carriers generally 

pass these costs on to customers, sometimes in the form of a line item on 

customer’s telephone bills. According to FCC, the average cost to each 

household in America is about $2.73 per month.14

USF provides financial support (i.e., subsidies) through four different 

programs, each targeting a particular group of telecommunications users 

(see table 1). In 2011, support for the four programs totaled $8 billion, and 

the high-cost program accounted for the largest amount of support—$4 

billion, or 50 percent of USF support. The high-cost program directly and 

indirectly supports basic telephone (i.e., fixed wireline), broadband, and 

wireless telephone (i.e., mobile) services. To make these services 

universally available, the high-cost program offers support to both wireline 

and wireless carriers operating in high-cost areas—generally rural—to 

offset costs, thereby allowing these carriers to provide rates and services 

that are comparable to the rates and services that consumers in low cost 

areas—generally urban—receive.

The contributions are 

deposited into the USF and distributed to the telecommunications carriers 

that provide service.

15

 

12FCC does not have to implement the recommendations made to it by the Joint Board 

but it is required to consider them. 

Consequently, while urban 

consumers pay the full cost of their service, many rural consumers 

receive services that are subsidized by the high-cost fund.

1347 U.S.C. § 254(d).

14This calculation is based on the total size of the USF divided by the number of 

households, but since USF contributions are also assessed to businesses, FCC believes 

the average cost to each household is likely to be less than $2.73 per month.

15Wireline 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 phone service.
 

Page 6 GAO-12-738 Repurposing USF for Broadband Deployment

Table 1: Summary of Current Universal Service Fund Programs

Program Description 

Calendar year 2011 

disbursements

(in millions)

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. $4,031

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. 2,232

Low income Assists qualifying low-income customers through discounted installation and 

monthly telephone services and free toll limitation service. 1,750

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. 82

Source: GAO presentation of FCC, NECA, and USAC data.

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

including its status as either the incumbent or a competitor, and the 

number of lines it claims in its service territory. Incumbent carriers are 

telephone carriers for a given service area that were in existence when 

Congress passed the 1996 Act and were members of NECA. 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. Many small rural carriers are 

subject to rate-of-return regulation, while nonrural carriers are usually 

larger and subject to price-cap regulations and provide service to 

approximately 95 percent of U.S. households, according to FCC 

officials.16

Federal and state governments play a role in implementing the federal 

high-cost program, as do not-for-profit corporations and associations. 

FCC has overall responsibility for the federal high-cost program, including 

making and interpreting policy, overseeing program operations, and 

ensuring compliance with its rules. However, FCC delegated to USAC 

 

16Rate-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). Price-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 7 GAO-12-738 Repurposing USF for Broadband Deployment

responsibility to administer the day-to-day operations of the high-cost 

program. State regulatory commissions hold the primary responsibility to 

determine carrier eligibility for program participation (i.e., states designate 

eligibility status of carriers) and to annually certify that carriers will 

appropriately use high-cost program support.17

Table 2: General Roles of Agencies and Organizations Involved in High-Cost Program Administration

Table 2 summarizes the 

general roles and responsibilities of the agencies and organizations 

involved in high-cost program administration.

Agency/Organization Description 

FCC • Makes all policy decisions pertaining to USF

• Oversees program administration and finances

• Designates eligibility status of some carriers to receive universal service support, including 

some carriers serving Tribal lands 

• Conducts oversight of some carriers’ use of funds

USAC • Primary administrator of the high-cost program

• Collects and validates line count data from carriers

• Bills contributors, collects contributions, and disburses universal service support

• Recovers improperly disbursed funds

• Maintains accounting records

• Processes appeals of funding decisions

• Submits periodic reports to FCC

• Conducts carrier oversight

NECA • Collects and validates cost and revenue data from carriers

• Collects and validates line count data from carriers

• Calculates the national average cost per loop

• Administers the interstate access charge revenue pools

State regulatory commissions • Designate eligibility status of most carriers to receive universal service support

• Annually certify that beneficiaries in their jurisdictions will use high-cost program support 

appropriately

• Some states may designate and certify wireless carriers

• Some states audit carriers

Source: GAO presentation of FCC, NECA, and USAC data.

The 2010 National Broadband Plan provided a road map for FCC to 

reform the high-cost program, among other USF programs, to ensure that 

all Americans have access to broadband-capable networks. The National 

 

17FCC also designates eligibility status of some carriers to receive high-cost program 

funds. 
 

Page 8 GAO-12-738 Repurposing USF for Broadband Deployment

Broadband Plan concluded that millions of Americans do not have access 

to broadband infrastructure at the target of 4 megabits per second (Mbps) 

download and 1 Mbps upload.18 The plan recommended, among other 

things, creating a Connect America Fund to address broadband 

availability gaps in unserved areas. The plan also recommended creating 

a Mobility Fund to provide support for deployment of a wireless network. 

As we previously reported, implementing the plan’s recommendations 

and ensuring universal broadband availability will be challenging, and it 

remains to be seen whether and how effectively FCC will be able to 

address these challenges and implement the plan’s recommendations.19

FCC adopted new rules to fundamentally change the high-cost program 

by extending the program to support broadband capable networks. 

According to FCC, the new rules will not adversely affect traditional voice 

services; rather the changes will ensure that affordable voice and 

broadband services are available to all Americans by 2017. The new 

rules also addressed multiple recommendations from the National 

Broadband Plan. See appendix III for the status of FCC’s efforts related to 

those recommendations and a timeline for implementing the new rules. In 

adopting the USF Transformation Order, FCC said it would control the 

size of the fund as it transitions to support broadband and require 

 

18Broadband connections in the U.S. can provide speeds exceeding 1 Mbps both 

upstream (data transferred from the consumer to the Internet service provider, also known 

as upload) and downstream (data transferred from the Internet service provider to the 

consumer, also known as download). 

19GAO, Telecommunications: National Broadband Plan Reflects the Experiences of 

Leading Countries, but Implementation Will Be Challenging, GAO-10-825 (Washington, 

D.C.: Sept. 14, 2010).

FCC Aims to Improve 

Efficiency and 

Provide Support for 

Broadband through 

Changes to the HighCost Program

FCC Adopted New Rules 

to Support Broadband 
 

Page 9 GAO-12-738 Repurposing USF for Broadband Deployment

accountability from carriers receiving support to ensure that public 

investments are used wisely to deliver intended results. The order 

outlines the following rules intended to improve the high-cost program 

and enable it to support broadband capable networks:

Establishing a program budget for the first time. FCC set a budget of 

$4.5 billion annually over the next 6 years by taking a number of actions, 

including placing a cap on total per-line support, freezing certain support 

for service providers at current levels, eliminating or phasing down certain 

types of support, and setting caps for rate-of-return carriers’ capital and 

operating expenses. FCC also established an automatic review trigger if 

the program budget is threatened to be exceeded. Specifically, the USF 

Transformation Order states that if program demand exceeds the

annualized $4.5 billion budget over any consecutive 4 quarters once fund 

reserves are exhausted, FCC will initiate a process to bring demand back 

under budget.20 According to FCC, the $4.5 billion, which was set at the 

2011 estimated level of support, will provide a predictable funding level 

for carriers and protect consumers and businesses that ultimately pay for 

the fund as FCC expands the program to support broadband.21 In the 

past, the high-cost program was not constrained by a specified level of 

funding and we and other stakeholders have previously raised concerns 

about the growing size of the program. The National Broadband Plan

recommended that FCC try to keep the overall size of the fund close to its 

current size (in 2010 dollars) and FCC stated that the budget will help to 

ensure that consumers will not pay more in contributions given the new 

program rules.

Creating the Connect America Fund. FCC created the Connect 

America Fund, which will ultimately replace the high-cost fund, to make 

both wireline and wireless broadband available in unserved areas. Within 

the Connect America Fund, FCC established support for mobile voice and 

broadband services, recognizing that promoting universal availability of 

mobile services is a vital component of universal service. Specifically, 

FCC established the Mobility Fund, which is the first universal service 

 

20For the years 2012-2017, USAC will forecast total high-cost universal service demand 

as no less than $1.125 billion. When the demand for high-cost funds is less than $1.125 

billion, the excess funds will become the fund’s reserves and will be used to make up the 

difference when demand exceeds $1.125 billion in a quarter. 

21It should be noted that FCC’s budget for the high-cost program is not the same as a firm 

cap, since unlike a firm cap, the $4.5 billion budget can be exceeded.
 

Page 10 GAO-12-738 Repurposing USF for Broadband Deployment

mechanism dedicated to ensuring availability of mobile voice and 

broadband services in areas where service is currently not available. In 

2012, FCC dedicated $300 million (one-time) for extending wireless 

coverage in unserved areas and $500 million annually for ongoing 

support for mobile voice and broadband service.

Establishing public interest obligations for all eligible carriers.

Previously, carriers were required to meet state public interest obligations 

and limited federal duties as eligible telecommunications carriers to 

receive USF support payments; however, carriers were not required to 

meet any specific performance standards in exchange for receiving the 

funds.22 Under the USF Transformation Order, FCC requires all carriers 

to offer broadband services in their supported service areas, meet certain 

broadband performance requirements, and report regularly on associated 

broadband performance measures. For instance, one of the broadband 

performance requirements is for carriers providing service to fixed 

locations to offer actual download speeds of at least 4 Mbps and upload 

speeds of at least 1 Mbps to broadband subscribers.

In the USF Transformation Order, FCC changed its method for 

distributing funds to carriers to address some of the recognized program 

inefficiencies. According to FCC, these changes will allow it to reduce 

high-cost support for carriers providing only voice services and make 

funds available to carriers for the deployment of both voice and 

broadband-capable networks. Since many of these changes have yet to 

be implemented, it is too early to assess their effectiveness. In the order, 

FCC took the following actions:

Eliminated the identical support rule. To encourage competition 

among carriers in rural areas, in 1997 FCC enacted the identical support 

rule. At that time, FCC concluded that it would be inconsistent with the 

statute and the competitive goals of the 1996 Act to exclude any 

providers (regardless of the technology used for providing voice service) 

from receiving universal service support and therefore determined that 

universal service support should be available to all carriers that met the 

 

22Some carriers were required to meet state-defined obligations for carriers of last resort, 

which include among other things, providing reliable service on nondiscriminatory terms at 

rates set by the state commission. Although there were no federal carriers of last resort 

obligations, carriers receiving USF support payments were conditioned to meet limited 

requirements, such as providing single phone line service and touch-tone dialing.

FCC Is Implementing 

Changes to Its Funding 

Distribution to Improve 

Program Efficiency
 

Page 11 GAO-12-738 Repurposing USF for Broadband Deployment

eligibility requirements, including competitive carriers that offered service 

via satellite or other wireless technology. Under this model, incumbent 

carriers received support based on their costs of providing service in an 

area or from FCC’s cost model and competitive carriers received the 

same amount of support per line served as the incumbent, regardless of 

whether the competitor needed that same amount of support to provide 

service. FCC assumed that high-cost support would be given to the most 

efficient and competitive carriers providing fixed, wireline telephone 

service (not mobile wireless providers), as they attracted customers from 

the incumbent carriers in a competitive marketplace. FCC anticipated that 

as the number of subscribers taking service from a more efficient 

competitor increased, the number of subscribers taking service from the 

incumbent would decrease, thereby decreasing the amount of support 

FCC paid to the incumbent providers. However, the vast majority of 

support payments for competitors went to wireless carriers and rather 

than providing a complete substitute for traditional wireline service, 

wireless competitors largely provided mobile voice service to customers 

who also had wireline service. Thus, FCC ended up paying support for 

both incumbents and competitors serving the same area, which caused 

disbursements from the fund to increase dramatically.

In the USF Transformation Order, FCC acknowledged that the existing 

system of providing high-cost support to competitive carriers that were 

serving the same customers as the incumbent providers was inefficient 

and the identical support rule failed to efficiently target support payments 

to where they were most needed. By eliminating the identical support 

rule, FCC can stop paying competitive carriers providing voice services 

and make those funds available for fixed and mobile voice and broadband 

services in targeted areas, including areas unserved by broadband. 

Several of the stakeholders and economists we contacted supported 

FCC’s decision to eliminate the identical support rule, noting that it was 

inefficient and ineffective. Starting January 1, 2012, FCC froze support for 

each competitive carrier at the 2011 monthly baseline amount. Beginning 

July 1, 2012, FCC stated it would reduce support for each competitive 

carrier by 20 percent annually for the next 5 years, with the aim of fully 

eliminating support by July 1, 2016.

Eliminated support in areas with 100 percent overlap. FCC also 

eliminated high-cost support for incumbent carriers in areas where an 

unsubsidized competitor—or a combination of unsubsidized 

competitors—also provides voice and broadband in the same service 

area, known as 100 percent overlap. During the course of its 

proceedings, FCC found that in many areas of the country, the high-cost 
 

Page 12 GAO-12-738 Repurposing USF for Broadband Deployment

program provided more support than necessary to achieve its goals by 

“subsidizing a competitor to a voice and broadband provider that was 

offering service without government assistance.” Significant 

improvements in technology have made it possible for some cable 

operators to offer many services, including both voice and broadband. As 

such, cable operators have become unsubsidized competitors, offering 

both voice and broadband services in the same service areas as 

incumbent carriers. A report commissioned by the National Cable and 

Telecommunications Association found that $504 million of high-cost 

support went to 277 rural incumbent carriers’ service area in which 

unsubsidized cable voice service was available to more than half of all 

households. The report also found that in many areas, cable operators 

offer voice service to more than 75 percent of the households, and in 

some cases they offer service to 90-100 percent of households in an 

incumbent carriers’ study area.23 Documents FCC made available to a 

congressional committee also showed evidence that other carriers, both 

wireless and wireline, provide service in high-cost areas but do not 

receive high-cost support.24

FCC acknowledged that providing high-cost support in areas of the 

country where another voice and broadband provider offers high-quality 

service without government assistance is an inefficient use of high-cost 

support, and therefore plans to eliminate support in areas with 100 

percent overlap service. An economist we contacted raised concerns on 

how FCC will identify and eliminate support for incumbent carriers in 

areas where unsubsidized competitors provide coverage. Details on the 

methodology and data to be used for determining overlap areas are 

currently unknown, but FCC plans to phase out, over a 3 year period, all 

support for incumbent carriers in those areas where unsubsidized 

For example, in an area in which the 

incumbent carrier received $1.7 million (almost $13,000 per line) annually 

in 2009, four wireless carriers provided voice service to more than 90 

percent of that carrier’s service area without receiving USF support.

 

23Jeffrey A. Eisenach, Universal Service Subsidies to Areas Served by Cable Telephony, 

(November 2009).

24In June 2010, the Committee on Energy and Commerce, U.S. House of 

Representatives, requested that FCC provide a list of the top 10 recipients of high-cost 

support and the amount of support received, in total and by subscriber line, and the list of 

competitors providing service in that area that did not receive high-cost support for years 

2007-2009.
 

Page 13 GAO-12-738 Repurposing USF for Broadband Deployment

competitors offer voice and broadband services for 100 percent of the 

residential and business locations in the incumbent’s service area.25

Established a new method to distribute funds to price-cap carriers.

Prior to the USF Transformation Order, FCC distributed high-cost support 

to price-cap carriers through multiple mechanisms: for example, in some 

areas FCC used a cost model to determine the costs of providing service 

in a specific area, while in other areas, support was based on actual cost 

of service. FCC recognized that this method of distributing high-cost 

funds needed to be changed to accelerate broadband deployment in 

unserved areas. Therefore, FCC changed the rules to (1) freeze the 

amount of high-cost support distributed to the price-cap carriers at the 

2011 support level, and (2) starting when there are model-set support 

amounts and auction rules in place (which FCC anticipated would be in 

January 2013) and for the next 5 years, employ a new model and 

competitive bidding to support networks that can provide both voice and 

broadband services.26 Specifically, FCC plans to develop a model that 

can 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. Each incumbent price-cap carrier will have the opportunity to 

accept the annual support derived from the model in each state in which it 

operates. In exchange for accepting the support, a carrier must continue 

providing voice service, commit to deploying broadband service, and 

meet public interest obligations associated with all the eligible census 

blocks in its territory. If an incumbent price-cap carrier declines, then FCC 

will put the service area up for competitive bid. The winning bidder will be 

required to provide voice and broadband services, and will receive the 

amount of support the carrier bid to provide service.27

Stakeholders we contacted had mixed views on FCC’s plans for using 

both a model and competitive bidding. Several economists we 

 

25This phase down period will start once FCC establishes a methodology for determining 

areas of overlap and publishes a list of companies for which there is 100 percent overlap. 

These issues are part of a pending Further Notice.

26FCC also made an additional $300 million in incremental support available to incumbent 

price-cap carriers to encourage immediate broadband build-out. 

27The carrier who proposes the lowest bid will be able to deploy the broadband-capable 

network in that area and receive high-cost support payments. FCC sometimes refers to 

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

Page 14 GAO-12-738 Repurposing USF for Broadband Deployment

interviewed commented that while FCC’s planned model may be an 

improvement over the previous distribution mechanism, it may not be the 

most effective way for distributing support because using a model is data 

intensive and requires accurate and reliable data from carriers. On the 

other hand, telecommunications stakeholders commented that if the 

variables used in the model are relatively accurate, the model may ensure 

that support is properly targeted to the areas most in need.

Changed the method for determining support levels for rate-ofreturn carriers. Prior to the USF Transformation Order, rate-of-return 

carriers received funding from the high-cost fund based on their actual 

costs. Under the old rules, 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.28 Under the new rules, FCC is 

taking multiple actions to target support for investments in broadband, 

increase accountability, and increase incentives for efficient use of public 

resources. The reform measures include limiting reimbursements for 

capital and operating expenses, and establishing an overall cap on the 

amount of support, totaling $250 per line per month, or $3,000 annually. 

The cap will be phased in over a 3-year period. Some economists we 

spoke with commented that it does not go far enough to make the 

mechanism more efficient. Two economists told us that if the reform were 

to have any impact, the cap needed to be further reduced to $100 per line 

per month.29

FCC has also adopted a rule to limit support to carriers whose end-user 

rates (i.e., basic telephone rates that carriers charge their customers) do 

not meet a local rate floor. During the course of its proceedings, FCC 

found that some carriers receiving high-cost support were offering basic 

voice plans as low as $5 per month, in comparison to the 2008 national 

average local rate of $15.62. The law requires that urban and rural rates 

be reasonably comparable, which FCC has implemented by requiring that 

rural consumers pay no more than two standard deviations30

 

28Connect America Fund; High-Cost Universal Service Support, WC Docket Nos. 10-90, 

05-337, Order, DA 12-646 (Wireline Comp. Bur. rel. Apr. 25, 2012), para. 1 and 2

above the 

29According to FCC, some 13,500 lines will be affected with the $250 per line per month 

cap. If the cap had been set at $100 per line per month, then about 185,000 lines in 108 

service areas would have been affected in 2010. 

30The term standard deviation refers to how spread out or widely dispersed the values in 

the sample are from the mean of the sample.
 

Page 15 GAO-12-738 Repurposing USF for Broadband Deployment

average of what urban consumers pay for the same level of voice 

service.31

Furthermore, to help ensure that the reform efforts do not adversely affect 

traditional voice service, FCC developed a waiver process for carriers that 

contend the reforms will affect their ability to provide reasonably 

comparable service at reasonably comparable rates if FCC reduces their 

current support levels. In petitioning FCC for a waiver, a carrier must 

clearly demonstrate that good cause exists for exempting it from some or 

all of the reforms, and that the waiver is necessary and in the public 

interest to ensure that consumers in the area continue to receive voice 

service. FCC cautioned that those seeking a waiver would be subject to a 

rigorous review, including an accounting of all revenues that the carrier 

receives. However, for those carriers receiving a waiver, FCC has not yet 

determined if it would impose a ceiling on the amount of support a carrier 

could receive per line.

To address this inefficiency, FCC has adopted a rule to reduce 

high-cost support for carriers whose end-user rates for voice service do 

not meet the local rate floor.

We and OMB have each issued a report in the last 7 years critical of 

FCC’s management of the high-cost fund and in the USF Transformation 

Order, FCC has taken several steps to address these challenges. The 

management challenges we identified included a lack of performance 

goals and measures for the program and weak internal controls, resulting 

in FCC’s limited ability to oversee the actions of carriers or the data they 

provide. In 2005, OMB criticized FCC’s inability to measure the effect of 

 

3147 U.S.C.§ 254 (b)(3). 

FCC Has Taken Steps 

to Address Previously 

Identified Oversight 

and Management 

Challenges, but Issues 

Remain 

FCC Steps to Address 

Management Challenges
 

Page 16 GAO-12-738 Repurposing USF for Broadband Deployment

the fund on subscribership in rural areas or to base funding decisions on 

any indication of measurable benefits.32

In 2008, we reported that FCC lacked specific performance goals or 

measures for the high-cost program. OMB reported that the high-cost 

program neither measures the impact of funds on telephone 

subscribership in rural areas nor bases funding decisions on measureable 

benefits. As a result, after spending more than $41.1 billion in high-cost 

funds since 2001, we reported that it was still unclear what FCC had 

achieved through the program. In our report in 2008, we recommended 

that FCC establish short- and long-term performance goals and measures 

to make clear the program’s intentions and accomplishments.

To address these challenges, 

FCC has (1) established performance goals and measures for the highcost program, (2) improved its internal control mechanisms over the fund, 

and (3) directed USAC to undertake additional oversight and 

management actions.

33

As shown in table 3, FCC developed five performance goals and three 

performance measures for the high-cost program in the USF 

Transformation Order. As of July 2012, FCC was still formulating 

measures for the remaining two goals.

 

32OMB. Program Assessment – Universal Service Fund High-Cost 

http://georgewbush-whitehouse.archives.gov/omb/expectmore/detail/10004451.2005.html, 

(accessed July 3, 2012). 

33GAO-08-633. 

Established Performance Goals 

and Measures 
 

Page 17 GAO-12-738 Repurposing USF for Broadband Deployment

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

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 high-cost 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.

In 2008, we also reported weaknesses in FCC’s internal control 

mechanisms, including the carrier certification process, carrier audits, and 

carrier data validation. State officials’ annual certification of carriers is the 

primary tool used to determine if carriers are operating according to the 

high-cost fund’s guidelines. However, because the certification 

requirements were not standardized across states, carriers have been 

subject to varying levels of oversight. Audits of carriers are the primary 

tool used to oversee carrier activities, and audits may be conducted by 

USAC, state regulatory commissions, or FCC’s Office of Inspector 

General. In 2008, we reported that from 2002 to 2008, USAC had 

conducted about 17 audits, from more than 1,400 carriers participating 

annually in the high-cost program. We also found in a survey that 7 out of 

50 state regulatory commissions reported auditing incumbent carriers. 

Based on these findings, among others, we determined that FCC’s 

internal controls were weak and that its ability to adequately oversee the 

high-cost program was hindered. In addition, neither FCC nor USAC had 

audited the carrier-reported data for accuracy, and they did not follow up 

to assess whether the actions carriers claimed they were taking with 

regard to using high-cost support were consistent with the actions they 

actually were taking. We recommended that FCC identify areas of risk in 

Improved Internal Control 

Mechanisms 
 

Page 18 GAO-12-738 Repurposing USF for Broadband Deployment

its internal control environment and implement mechanisms to help 

ensure carriers’ compliance with program rules.34

In the USF Transformation Order, FCC addressed all three of the areas 

we discussed in our 2008 report. To standardize the certification 

requirements and bring more scrutiny to the data reported by carriers, 

FCC established a national oversight framework that will be implemented 

as a partnership between FCC and the states, U.S. territories, and tribal 

governments. This framework will include annual reporting and 

certification requirements for all carriers receiving universal service funds 

and is designed to provide federal and state regulators with the 

information needed to determine whether recipients are using support for 

the intended purposes. Under the new standards, all carriers must include 

in their annual reports to FCC and their respective state commissions a 

progress report on their 5-year build-out plans, data, and explanatory text 

concerning outages, unfulfilled requests for service, and complaints 

received. They must also certify compliance with applicable service 

quality and consumer protection standards and further certify their ability 

to function in emergency situations.

To address the lack of audits on the part of FCC and USAC, FCC 

directed USAC to review and enhance two programs that are intended to 

oversee and safeguard USF.35 FCC developed these programs in 

coordination with OMB in 2010 to ensure that recipients of USF support 

comply with FCC rules, and to prevent and detect waste, fraud, and 

abuse. FCC expects that these audits will verify the accuracy of the 

underlying data and address our previously reported concern that FCC 

does not validate the accuracy of data reported by carriers.36

 

34

Additionally, 

FCC directed USAC to annually assess compliance with the new 

requirements established for Connect America Fund recipients and test 

GAO-08-633. 

35 These two programs are called the Beneficiary/Contributor Compliance Audit Program 

and the Payment Quality Assurance Program. 

36GAO-08-633. 

Directed USAC to Undertake 

Additional Oversight
 

Page 19 GAO-12-738 Repurposing USF for Broadband Deployment

the accuracy of carriers’ certifications.37 While these activities may 

improve FCC’s oversight of program funds, it is too soon to assess their 

effectiveness.

While FCC has taken steps to address several shortcomings of the highcost program, our review of the order has identified gaps in FCC’s plans 

to better oversee the program and make it more effective and efficient. 

Specifically, we determined that FCC lacks (1) a data-analysis plan for 

carrier data it will collect, and (2) a mechanism to link carrier rates and 

revenues with USF support payments.

In the past, FCC had no way to measure the effectiveness of the highcost program because it did not collect adequate data at the service area 

level, i.e., a geographic area served by a specific carrier that would allow 

FCC to measure the effect of the funds by carrier on subscribership 

levels.38

Under the USF Transformation Order, FCC will start collecting data from 

carriers that receive Connect America Fund monies on (1) the amount of 

funding the carriers received, (2) their build-out of infrastructure for 

broadband capable networks, and (3) service quality and speed in the 

As a result, FCC did not know if high-cost funds were achieving 

their intended purpose. Economists have pointed out that to determine if 

high-cost funds were achieving their intended purpose, FCC would need 

to determine whether the provision of funds had caused an increase in 

the level of subscribership that would not have occurred in the absence of 

the funds. To assess program effectiveness, FCC would need to collect 

data showing the outcomes (i.e., the change in the level of telephone 

subscriptions) in study areas that used these funds as well as the 

outcomes in study areas where these funds were not used.

 

37For the first phase of the Connect America Fund, FCC established a requirement that 

carriers must have completed build-out to two-thirds of the requisite number of locations 

within 2 years. FCC also directed USAC to assess compliance with this requirement for 

each holding company that receives funds during the first phase. According to FCC, any 

oversight program to assess compliance will be designed to ensure that carriers are 

reporting accurately and will be designed to test some of the underlying data that forms 

the basis for a carrier’s certification of compliance with various requirements. 

38Service area is usually the service territory where a telecommunications carrier operates 

and provides services in one state. Holding companies may own multiple operating 

companies and thus have multiple service areas in a state. 

Gaps in FCC’s Oversight 

and Management of the 

High-Cost Program

Lack of a Data-Analysis Plan 

for Carrier Data
 

Page 20 GAO-12-738 Repurposing USF for Broadband Deployment

level of broadband service provided.39 According to the order, FCC is 

collecting the information to monitor progress in achieving its broadband 

goals and to assist FCC in determining whether the funds are being used 

appropriately. However, FCC’s order does not articulate a specific dataanalysis plan for the carrier data it will collect and it is unclear if or how 

FCC plans to use the data. We have previously noted that sound program 

evaluation should include a detailed data-analysis plan to track the 

program’s performance and evaluate its final results.40 Lacking such an 

evaluation, the achievements and overall effectiveness of the Connect 

America Fund are less likely to be clear and FCC might not have the 

analysis to determine what changes should be made to improve the 

program. Analyzing the carrier data could enable FCC to determine the 

program’s effectiveness because the analysis would provide some 

definitive examples of the connection between the level of subsidy and 

the specific demographic factors of the service areas that have shown an 

increase in broadband access.41

One of FCC’s performance goals (and a requirement in statute) is to 

ensure that rates for broadband and voice services are reasonably 

comparable in all regions of the country. FCC has defined voice rates as 

being reasonably comparable if the rural rate is equal to or greater than 

Furthermore, such analysis would 

enable FCC to adjust the size of the Connect America Fund based on 

sound evaluation and would allow Congress and FCC to make better 

informed decisions about the future of the program and how program 

efficiency could be improved. Although FCC plans to determine the 

number of residential, business, and community anchor institution 

locations that have newly gained access to broadband service per $1 

million spent in USF subsidy, such an evaluation does not provide any 

direct link between an increase in broadband access and funding 

subsidies provided by the Connect America Fund. In other words, FCC 

will know the extent to which broadband access has changed over time, 

but it will not know what factors have influenced the change.

 

39USF Transformation Order, Appendix A, ¶54.313.

40GAO, Telecommunications: FCC's Performance Management Weaknesses Could 

Jeopardize Proposed Reforms of the Rural Health Care, GAO-11-27 (Washington, D.C.: 

Nov. 17, 2010).

41FCC noted that this data will not allow direct attribution of improvement in the availability 

of broadband to the amount of money provided as this would assume that there would not 

be any investment on the part of the carrier. 

Lack of a Mechanism to Link 

Carrier Rates and Revenues 

with Support Payments
 

Page 21 GAO-12-738 Repurposing USF for Broadband Deployment

the average urban rate but not by more than two standard deviations. 

However, in the USF Transformation Order, FCC reported that many rural 

carriers are offering basic local rates for telephone service that are lower 

than the average basic local rate paid by urban consumers. In fact, FCC 

cited data submitted by NECA which summarized 2008 residential rates 

for over 600 companies — a broad cross-section of carriers that typically 

receive universal service support — showing that approximately 60 

percent of those carriers offered pricing plans that were below the 2008 

national average local rate of $15.62. (According to FCC information 

published in 2008, if the average urban rate plus federal and state 

charges were $25.62, rural rates plus federal and state charges could be 

as high as $36.52.) Two of the economists we contacted have written on 

the inequity of this urban-rural rate difference, stressing that an effect of 

this inequity could be the transfer of wealth from poor urban consumers 

who pay into the fund but receive no subsidy, to wealthy rural consumers 

who benefit from subsidized rates.42

To address this discrepancy, the USF Transformation Order required 

carriers to provide price data for both local telephone rates and 

broadband service. FCC will begin collecting data in July 2012 regarding 

rates paid by consumers in rural areas that do not meet the local rate 

floor. FCC officials told us they are developing a survey of urban rates to 

obtain more current information than the last urban rate survey, which 

was published in 2008. Once it obtains these data, it can analyze the 

extent to which rural consumers pay rates lower than urban consumers. 

FCC also instituted an incentive for carriers to increase artificially low 

consumer rates by reducing high-cost support for voice services to those 

carriers whose customers do not pay an amount equal to a specified local 

rate floor.43 In other words, FCC plans to limit high-cost support for 

carriers to the extent they provide service to consumers at rates below 

the national urban average.44

 

42Gregory Rosston and Bradley Wimmer, “The ‘State’ of Universal Service,” Information 

Economics and Policy 12, no.3 (2000): 261-283.; Scott Wallsten, The Universal Service 

Fund: What do High-Cost Subsidies Subsidize?” (Washington, D.C.: Technology Policy 

Institute, February 2011). 

In the USF Transformation Order, FCC 

justified this reduction by stating that “we do not believe it is equitable for 

43USF Transformation Order, para 235 & 240.

44FCC requires carriers to report the number of customer lines that are less than the 

average urban rate.
 

Page 22 GAO-12-738 Repurposing USF for Broadband Deployment

consumers across the country to subsidize the cost of service for some 

consumers that pay local service rates that are significantly lower than the 

national urban average.”45

In 2007, the Joint Board adopted as a basic principle that USF should 

exist within a limited budget and made several recommendations to help 

FCC do so, including considering a carrier’s revenues when calculating its 

need for USF support. Controlling the growth of the high-cost fund could 

help FCC achieve its goal of minimizing the universal service contribution 

burden on consumers and businesses. Similar to the points raised by 

NASUCA and four of the economists we contacted, the Joint Board 

believed in 2007 that if broadband was to become a funded universal 

service, then the mechanisms used to calculate support payments should 

be revised to take into account the carriers’ net profits from selling 

broadband to wireline customers. The Joint Board noted that such profits 

should be measured and used to offset some of the carriers’ claims for 

explicit USF support. However, in 2008, FCC declined to implement the 

Joint Board’s recommendation related to considering carrier revenues 

when calculating support payments. According to the Joint Board, FCC 

FCC officials told us they plan to determine 

how much carrier revenue would increase if the rural rates increased to 

the urban rate average. However, because FCC does not include carrier 

revenues in determining USF support payments for the carriers, FCC will 

allow carriers that subsequently raise their rates to the national urban 

average to receive the support payments they were initially denied when 

their rates were below the specified floor. As a result, FCC’s incentive 

mechanism to raise rural rates will not result in any reduction in the 

amount consumers are charged for universal service. Members of the 

National Association of State Utility Consumer Advocates (NASUCA) we 

contacted expressed concern that the level of USF support payments is 

not tied to a carrier’s rates and revenues. They explained that carriers’ 

revenues come from services other than basic local service, but all of 

those services are carried over the networks to which consumers have 

contributed for years through the USF. These revenues are not included 

in the determination of USF payments that the carriers will receive. In 

addition, of the six economists we interviewed who are knowledgeable 

about how universal service support payments are determined, four 

explicitly mentioned revenues as one of the factors that should be taken 

into account for modeling the level of support that carriers receive.

 

45USF Transformation Order, para 237.
 

Page 23 GAO-12-738 Repurposing USF for Broadband Deployment

did not address why the Joint Board’s recommendation had not been 

adopted.

Under the USF Transformation Order, FCC will consider a carrier’s 

revenue when determining support payments under certain 

circumstances. In particular, for those carriers that petition for a waiver to 

exempt the carrier from some or all USF reforms, FCC intends to subject 

such requests to a rigorous, thorough, and searching review comparable 

to a total company earnings review. In those cases, FCC intends to take 

into account not only all revenues derived from network facilities that are 

supported by universal service, but also revenues derived from 

unregulated and unsupported services as well. As we noted previously, 

under the USF Transformation Order, FCC is developing a new model to 

revise its method for calculating carrier support, since FCC recognized 

that the prior method of distributing high-cost funds needed to be 

changed to accelerate broadband deployment in unserved areas. 

However, FCC has not stated what factors, such as carrier revenues, will 

be included in the model.46

FCC has undertaken the difficult task of reforming the high-cost program 

to make it more efficient and thus able to support both voice and 

broadband services. In the USF Transformation Order, FCC said it would 

control the size of USF as it transitions to support broadband and adopted 

new rules to make the fund more efficient as a way to minimize the 

universal service contribution burden on consumers and businesses. As 

FCC looks to broaden the scope of the high-cost program by providing 

support for broadband capable networks, it is therefore important for FCC 

to ensure that the limited program funds are used as effectively and 

efficiently as possible to stem further growth in the fund. Historically, FCC 

has not collected data at the level economists agree is necessary to 

determine the overall effectiveness of the high-cost program or 

demonstrate that the program increased telephone subscribership 

beyond the level that would have been achieved if there were no subsidy. 

Rather, FCC has assumed that the subsidies going to carriers were 

 

46FCC plans to complete the model by the end of 2012 and has not yet made the 

proposed model public. FCC officials believe FCC is not prohibited per se from 

considering revenues. Rather, FCC would consider the statutory directives, relevant legal 

precedent, and the record in the relevant FCC proceedings in determining whether 

support is sufficient but not excessive to achieve the goals of universal service.

Conclusions 
 

Page 24 GAO-12-738 Repurposing USF for Broadband Deployment

positively affecting subscribership even though it collected no empirical 

data to support that conclusion. In the USF Transformation Order, FCC 

instituted performance goals and measures with the intention of ensuring 

that the reforms achieve their intended purpose, and will require those 

carriers receiving support from the Connect America Fund to submit 

additional information. However, FCC has no specific data-analysis plan 

for the carrier data it will collect. Such analysis could enable FCC to 

correlate the amount of money spent with the increase in broadband 

access in specific areas and thus help FCC to determine the 

effectiveness of Connect America Fund expenditures. Lacking such 

analysis, the program’s achievements and overall effectiveness are less 

likely to be clear and Congress and FCC might not have the information 

necessary to make informed decisions about the program’s future.

According to statute, urban and rural telecommunication rates should be 

reasonably comparable, but many rural consumers, whose rates are 

supported through the high-cost fund, pay rates that are lower than many 

urban consumers. FCC has stated that it is not equitable for all 

consumers to subsidize the cost of service for some consumers who pay 

local service rates that are significantly lower than the national average. 

In addition, given the way the high-cost program is funded, it is possible 

that poor urban consumers are subsidizing wealthy rural consumers. To 

provide an incentive for carriers to raise rates in rural areas, FCC plans to 

penalize carriers with rates that are too low by reducing the amount of 

high-cost support they can receive. While this action should help rural and 

urban rates become more comparable, it will not prevent consumers from 

subsidizing the cost of service for those areas where rates are too low 

because FCC will continue to allow carriers to receive the same amount 

of subsidy once their rates are raised to the urban mean. Therefore, 

although FCC would like to prevent consumers from subsidizing carriers 

whose rates for basic local service are artificially low, its incentive 

mechanism to raise rural rates will not reduce the financial burden placed 

on all consumers as there is currently no connection between the amount 

of support payments a carrier receives and the revenue a carrier earns, 

through rates or any other source. In addition to voicing concern for the 

potential inequity of rural rates that are lower than urban rates, FCC has a 

stated goal to minimize the universal service contribution burden on 

consumers and businesses. The National Broadband Plan recommended 

that FCC keep the overall size of the fund close to its 2010 funding level, 

and the Joint Board has stated its strong commitment to limit the size of 

the fund. As a way to control the size of the fund, the Joint Board 

recommended that FCC consider a carrier’s revenues when calculating 

its need for USF support but FCC declined to implement this 
 

Page 25 GAO-12-738 Repurposing USF for Broadband Deployment

recommendation. Under the USF Transformation Order, FCC has the 

opportunity to revisit this issue as it develops a new model to determine 

the amount of support a carrier should receive, however it has not stated 

what factors will be included in the model.

FCC should take the following two actions:

• To determine the overall effectiveness of the Connect America Fund 

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

program, establish a specific data-analysis plan for the carrier data 

and make the information publicly available.

• To help minimize the universal service contribution burden on 

consumers and businesses, as FCC examines and revises the 

manner in which carrier support payments are calculated, consult with 

the Joint Board and/or make appropriate referrals to determine what 

factors, such as carrier revenues, should be considered in the 

calculation.

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

response, FCC stated that our recommendations were valuable and 

noted that it has taken steps to address the oversight and management 

challenges we previously identified. Specifically, FCC noted that in the 

USF Transformation Order, FCC has adopted performance goals, set 

forth requirements to provide voice and broadband service to all 

Americans, and established a national framework to ensure that 

recipients who benefit from public investment in their networks have 

clearly defined public interest obligations and reporting requirements.

FCC’s written response also included information to further clarify the 

actions that are currently under way related to the USF Transformation 

Order. With respect to our first recommendation, FCC agreed that it 

should establish a specific plan to analyze the data reported by the 

carriers as a way to improve oversight of the program, and noted it is 

planning to build on measures adopted in the USF Transformation Order 

to improve the effectiveness of the new program. Related to our second 

recommendation, FCC agreed that revenues derived from infrastructure 

supported by universal service are an important consideration when 

determining support provided to carriers, and FCC appreciated our 

suggestion that it work with the Joint Board to implement the reforms in 

the USF Transformation Order. FCC’s written comments are reprinted in 

appendix II.

Recommendations for 

Executive Action

Agency Comments
 

Page 26 GAO-12-738 Repurposing USF for Broadband Deployment

FCC provided technical comments on the draft report that we 

incorporated as appropriate.

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

appropriate congressional committees. In addition, the report will be 

available at no charge on the GAO website at http://www.gao.gov. 

If you or your staff have any questions about 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. Contact information and major contributors to 

this report are listed on appendix IV.

Mark L. Goldstein

Director, Physical Infrastructure Issues
Appendix I: Objectives, Scope, and 

Methodology

Page 27 GAO-12-738 Repurposing USF for Broadband Deployment

This report examines the Federal Communications Commission’s (FCC) 

plans to refocus and expand the high-cost program of the Universal 

Service Fund (USF) to provide support for broadband-capable networks. 

In particular, the report provides information on (1) FCC’s plans for 

repurposing the USF high-cost program for broadband services and (2) 

how FCC is planning to address previously identified oversight and 

management challenges as it broadens the scope of the program.

To understand FCC’s plans for repurposing the high-cost program for 

broadband service, we reviewed and analyzed FCC’s USF 

Transformation Order and associated stakeholder comments. We 

interviewed officials from FCC, the Universal Service Administrative 

Company (USAC),1 and the National Exchange Carrier Association 

(NECA)2

To determine how FCC is planning to address previously identified 

oversight and management challenges as it broadens the scope of the 

program, we reviewed our past reports, documents from the Office of 

Management and Budget and FCC’s Office of Inspector General, and 

academic literature related to the high-cost program of USF. We met with 

on the rule changes outlined in the order and other actions that 

FCC has taken to repurpose USF to support broadband services in 

addition to voice services. We analyzed and assessed the previous and 

planned high-cost program structure and method of distributing funds. We 

also reviewed and analyzed telecommunications stakeholders’ filings and 

studies on the potential impact of FCC’s planned changes to the existing 

high-cost program. We limited the scope of our review to the USF highcost program because in the USF Transformation Order, FCC focused on 

repurposing the high-cost program to support broadband. Although FCC 

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 complex and different system of federal and state rules 

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

intercarrier compensation.

 

1

USAC is the not-for-profit corporation that administers the USF programs.

2

NECA is a not-for-profit association of local telephone carriers established by FCC in 

1983 to perform telephone industry tariff filings and revenue distributions.

Appendix I: Objectives, Scope, and 

Methodology 
Appendix I: Objectives, Scope, and 

Methodology

Page 28 GAO-12-738 Repurposing USF for Broadband Deployment

telecommunications stakeholders, including associations representing 

consumers, small and large telecommunications carriers, and state 

regulatory commissions, to obtain their views on FCC’s management of 

and the changes made to the high-cost program. We identified industry 

stakeholders based on prior published literature, including filings with 

FCC, and other stakeholders’ recommendations. We also conducted 

semi-structured interviews with economists from academia and the 

telecommunications industry, recognized for their thorough knowledge of 

universal service. The economists we spoke with were selected based on 

studies focused on the high-cost program of USF, published within the 

last 5 years, and recommendations from telecommunications industry 

stakeholders, including associations representing telecommunications 

carriers, consumers, and state regulatory commissions. See table 4 for 

the stakeholders and economists we contacted.

Table 4: List of Telecommunications Industry Stakeholders and Economists 

Contacted

Stakeholder Groups Stakeholders 

Associations representing 

telecommunications 

carriers 

CTIA -The Wireless Association

National Telecommunications Cooperative Association 

(NTCA) 

Organization for the Promotion and Advancement of Small

Telecommunications Companies (OPASTCO)

RCA – The Competitive Carriers Association

USTelecom Association

Associations representing 

state regulatory 

commissions

National Association of Regulatory Utility Commissioners 

(NARUC)

Consumer advocates National Association of State Utility Consumer Advocates 

(NASUCA) 

Public Knowledge

Economists Michelle Connolly, Duke University

Bob Loube, Rolka Loube Saltzer Associates

John Mayo, Georgetown University

Douglas Meredith, John Staurulakis, Inc.

Greg Rosston, Stanford University

Scott Wallsten, Technology Policy Institute

Source: GAO.

We conducted this performance audit from September 2011 to July 2012 

in accordance with generally accepted government auditing standards. 
Appendix I: Objectives, Scope, and 

Methodology

Page 29 GAO-12-738 Repurposing USF for Broadband Deployment

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.
Appendix II: Comments from the Federal 

Communications Commission

Page 30 GAO-12-738 Repurposing USF for Broadband Deployment

Appendix II: Comments from the Federal 

Communications Commission
Appendix II: Comments from the Federal 

Communications Commission

Page 31 GAO-12-738 Repurposing USF for Broadband Deployment
Appendix II: Comments from the Federal 

Communications Commission

Page 32 GAO-12-738 Repurposing USF for Broadband Deployment
Appendix II: Comments from the Federal 

Communications Commission

Page 33 GAO-12-738 Repurposing USF for Broadband Deployment
Appendix III: Federal Communications 

Commission’s Action to Implement National 

Broadband Plan Recommendations Related to 

the Universal Service Fund and Implement the 

USF Transformation Order

Page 34 GAO-12-738 Repurposing USF for Broadband Deployment

In early 2009, Congress directed the Federal Communications 

Commission (FCC) to develop a broadband plan to ensure every 

American has “access to broadband capability” and to report annually on 

the state of broadband availability. In March 2010, an FCC task force 

issued the National Broadband Plan, which provided a road map for FCC 

to reform Universal Service Fund (USF) and the high-cost program, in 

particular. The National Broadband Plan made 11 recommendations as it 

relates to universal service.1

In the USF Transformation Order, released in November 2011, FCC took 

action to realize the overarching goal of the National Broadband Plan to 

make affordable broadband service available to all Americans. In 

particular, FCC adopted a number of actions designed to transition 

universal service funds from supporting only voice service to supporting 

networks that can provide both voice and broadband services. Table 6 

displays FCC’s timeline for making this transition.

FCC has implemented or partially 

implemented 3 and is planning to implement the remaining 8 

recommendations. Table 5 provides information on actions FCC has 

taken to enact the selected recommendations made in the National 

Broadband Plan. 

Table 5: Status of FCC Actions to Implement Recommendations from the National Broadband Plan

National Broadband Plan Recommendations FCC Actions

1. FCC should improve USF performance and accountability. As FCC reforms 

its USF support and disbursement mechanisms, it should also ensure that 

any future enhancements to the USF program have accountability and 

oversight provisions built in from the outset. As FCC moves forward on the 

reforms in the plan, it should enhance its data collection and reporting to 

ensure that the nation’s funds are being used effectively to advance defined 

programmatic goals.

Planning under way. FCC established public 

interest obligations, including meeting certain 

broadband performance requirements, in 

exchange for receiving support. FCC also 

developed accountability mechanisms, such as 

requiring default payments, in case carriers 

receiving support default from their obligations.

2. FCC should create the Connect America Fund. FCC’s long range goal should 

be to replace all of the legacy high-cost programs with a new program that 

preserves the connectivity that Americans have today and advances universal 

broadband in the 21st century.

Implemented. In the USF Transformation Order, 

FCC created the Connect America Fund, which 

will ultimately replace the high-cost program.

 

1

We are reporting on recommendations specifically directed to FCC related to the highcost fund.

Appendix III: Federal Communications Commission’s 

Action to Implement National Broadband Plan

Recommendations Related to the Universal Service 

Fund and Implement the USF Transformation Order
Appendix III: Federal Communications 

Commission’s Action to Implement National 

Broadband Plan Recommendations Related to 

the Universal Service Fund and Implement the 

USF Transformation Order

Page 35 GAO-12-738 Repurposing USF for Broadband Deployment

National Broadband Plan Recommendations FCC Actions

3. FCC should create a Mobility Fund. FCC should create a Mobility Fund to 

provide one-time support for deployment of 3G networks, to bring all states to 

a minimum level of 3G (or better) mobile service availability. FCC should 

select an efficient method, such as a market-based mechanism, for 

supporting mobility in targeted areas.

Implemented. In the USF Transformation Order, 

FCC created the Mobility Fund. A one-time 

support of $300 million will be made available and 

disbursed through a competitive bidding process. 

Ongoing support of $500 million will also be made 

available for carriers to deploy a minimum level of 

3G mobile service availability.

4. FCC should design new USF funds in a tax-efficient manner to minimize the 

size of the gap. In certain circumstances, the Department of Treasury’s 

Internal Revenue Service treats governmental payments to private parties for 

the purpose of making capital investments to advance public purposes as 

contributions to capital under section 118 of the U.S. Internal Revenue Code. 

Such treatment allows recipients to exclude the payments from income, but 

reduces depreciation deductions in future years.

Planning under way. According to FCC officials, 

the first phase of Connect America Fund and 

Mobility Fund has been designed to enable 

carriers to seek an advisory ruling from the 

Internal Revenue Service that the funding 

represents a contribution to capital under section 

118.

5. Throughout the USF reform process, FCC should solicit input from Tribal 

governments on USF matters that affect Tribal lands. In recognition of Tribal 

sovereignty, FCC should solicit input from Tribal governments on any 

proposed changes to USF that would affect Tribal lands. Tribal governments 

should play an integral role in the process for designating carriers that may 

receive support to serve Tribal lands. The eligible carrier designation process 

should require consultation with the relevant Tribal government after a carrier 

files an application to serve a Tribal land. It should also require that an eligible 

carrier file a plan with both FCC (or state, in those cases where a carrier is 

seeking eligible carrier designation from a state) and the Tribe on proposed 

plans to serve the area.

Planning under way. FCC is requiring eligible 

carriers serving Tribal lands to demonstrate and 

report meaningful engagement with Tribal 

governments in their supported areas. Carriers 

must document that they had, at the minimum, 

discussions that included: (1) a needs 

assessment and deployment planning with a 

focus on Tribal community anchor institutions; (2) 

feasibility and sustainability planning; (3) 

marketing services in a culturally sensitive 

manner; (4) rights of way processes, land use 

permitting, facilities siting, environmental and 

cultural preservation review processes; and (5) 

compliance with Tribal business and licensing 

requirements.

6. FCC should take action to shift up to $15.5 billion over the next decade from 

the current high-cost program to broadband through commonsense reforms. 

FCC should issue an order to implement the voluntary commitments of Sprint 

and Verizon Wireless to reduce the high-cost funding they receive as 

competitive carriers to zero over a 5-year period as a condition of earlier 

merger decisions. FCC should require rate-of-return carriers to move to 

incentive regulation. FCC should phase out the remaining legacy high-cost 

support for competitive carriers and establish a schedule to reduce support to 

zero over 5 years. As support levels for competitive carriers are reduced, this 

funding should be redirected toward broadband. Depending on the details and 

timing of implementation, these actions collectively will free up to $15.5 billion 

(present value in 2010 dollars) in funding from the legacy high-cost program 

between 2010 and 2020.

Planning under way. Proposals to move rate-ofreturn carriers to an incentive regulation are out 

for comment. FCC also froze support for each 

competitive carrier at the 2011 monthly baseline 

amount, starting in January 1, 2012. Beginning 

July 1, 2012, FCC plans to reduce support for 

each competitive carrier by 20 percent annually 

for the next 5 years, with the aim of fully 

eliminating support by July 1, 2012. 

7. FCC should examine middle-mile costs and pricing. An examination of 

middle-mile costs and pricing should occur in concert with the comprehensive 

USF reform program.

Planning under way. FCC is gathering data, as 

part of its consideration of special access reform. 

The FCC Chairman circulated a proposed item to 

the other commissioners, setting forth a path to 

reform and modernize FCC’s rules for special 

access services to protect competition and 

ensure access to robust, affordable broadband for 

small business, mobile providers, and others.
Appendix III: Federal Communications 

Commission’s Action to Implement National 

Broadband Plan Recommendations Related to 

the Universal Service Fund and Implement the 

USF Transformation Order

Page 36 GAO-12-738 Repurposing USF for Broadband Deployment

National Broadband Plan Recommendations FCC Actions

8. FCC should begin making disbursements from the Connect America Fund. 

Once FCC completes rulemakings to establish the parameters of the new 

Connect America Fund, it should begin to distribute funds to discrete 

geographic areas that contain unserved households.

Planning under way. As part of the first phase of 

implementing the Connect America Fund, FCC 

froze support for price cap carriers and 

announced incremental support amounts under 

the Connect America Fund.

9. FCC should broaden the universal service contribution base. As FCC 

establishes the Connect America Fund, it should also adopt revised 

contribution methodology rules to ensure that USF remains sustainable over 

time.

Planning under way. FCC developed proposals to 

reform and modernize how USF contributions are 

assessed and recovered. A Notice for Proposed 

Rulemaking is out for public comment.

10. FCC should manage the total size of USF to remain close to its current size 

(in 2010 dollars) in order to minimize the burden of increasing universal 

service contributions on consumers. Unrestrained growth of the USF, 

regardless of reason, could jeopardize public support for the goals of 

universal service. FCC should aim to keep the overall size of the fund close to 

its current size (in 2010 dollars), while recognizing that the uncapped parts of 

USF may continue to grow due to factors outside the scope of the National 

Broadband Plan. As FCC implements the recommendations of the plan, it 

should evaluate innovative strategies to leverage the reach of existing 

governmental support programs and evaluate whether to adjust the relative 

proportion of supply-side versus demand-side subsidies over time.

Partially implemented. In the USF Transformation 

Order, FCC established a budget of $4.5 billion 

annually over the next 6 years.

11. FCC should eliminate the legacy high-cost program, with all federal 

government funding to support broadband availability provided through the 

Connect America Fund. By 2020, the “old” high-cost program will cease 

operations, and service providers will only receive support for deployment and 

provision of supported services (i.e., broadband that offers high-quality voice) 

through the Connect America Fund. FCC should set a deadline for recipients 

of USF to offer supported services. FCC should consider alternative 

approaches, such as satellite broadband, for addressing the most costly 

areas of the country to minimize the contribution burden on consumers across 

America. 

Planning under way. In the USF Transformation 

Order, FCC created the Connect America Fund to 

ultimately replace the high-cost program. FCC 

has established deadlines to offer supported 

services. For instance, carriers receiving 

incremental support from the Connect America 

Fund in 2012 are required to complete broadband 

deployment to all required locations within 3 

years. FCC is considering alternative approaches, 

such as satellite broadband, for addressing the 

most costly areas.

Source: GAO analysis of the National Broadband Plan and USF Transformation Order.

Note: The National Broadband Plan made 15 recommendations under the universal service category, 

which included recommendations for reforming intercarrier compensation. Because we did not review 

intercarrier compensation, those recommendations were not included in our analysis and the table 

above. One recommendation that was not directed to FCC was also excluded from our analysis.

Table 6: Key Actions and Timeline for Implementing the USF Transformation Order

Time frame Key Actions and Requirements

Nov. 18, 2011 USF Transformation Order released.

Jan. 1, 2012 • FCC froze high-cost support to carriers, equal to the amount of support the carriers received in 2011 

in a given study area.

• FCC eliminated the identical support rule and began phasing down the support provided to carriers 

under that rule.

Feb. 15, 2012 The Universal Service Administrative Company (USAC) published each carrier’s frozen high-cost 

support amount.
Appendix III: Federal Communications 

Commission’s Action to Implement National 

Broadband Plan Recommendations Related to 

the Universal Service Fund and Implement the 

USF Transformation Order

Page 37 GAO-12-738 Repurposing USF for Broadband Deployment

Time frame Key Actions and Requirements

April 25, 2012 FCC announced the $300-million incremental support amounts for carriers (this occurred about a month 

later than the originally planned March 31, 2012, date in the USF Transformation Order). 

June 1, 2012 As directed in the USF Transformation Order, FCC issued a progress report on the status of developing 

a cost model for price-cap carriers, in preparation for implementing the revised disbursement 

mechanisms (i.e., the cost model and competitive bidding mechanisms) under the Connect America 

Fund.

July 25, 2012 Each carrier must notify FCC within 90 days of being informed of the incremental support amount (i.e., 

April 25, 2012), identifying the amount of support it wishes to accept and the areas by wire centers and 

census blocks in which the carrier intends to deploy broadband to meet its obligation. Carriers can also 

decline the incremental support.

September 27, 2012 Competitive bidding for the one-time, $300-million disbursement of the Mobility Fund is scheduled to 

begin.

December 31, 2012 • FCC plans to have adopted a forward-looking cost model for the purpose of implementing the 

second phase of the Connect America Fund.

• FCC will begin disbursing $300 million from the Mobility Fund no later than 2013.

January 1, 2013 • FCC will begin implementing the second phase of Connect America Fund, which consists of 

generating a support amount from a cost-model and/or conducting competitive bidding.

• Contingency plan will take effect if second phase of Connect America Fund (i.e., the cost model and 

competitive bidding mechanism) is not ready for implementation.

o FCC will phase in a requirement that carriers use the incremental support amount for 

building and operating broadband-capable networks and offering broadband services 

in substantially unserved areas.

2013 • All carriers receiving frozen high-cost support will be required to use at least one-third of the support 

to build and operate broadband-capable networks used to offer broadband services in substantially 

unserved areas.

• Carriers accepting support that was generated from the cost-model will receive half of the full 

amount the carrier was designed to receive and half the amount the carrier received under the first 

phase of the Connect America Fund (which would be the frozen 2011 support amount or the frozen 

amount plus the incremental support amount the carrier may have accepted from the first phase of 

implementing the Connect America Fund).

July –September 2013 FCC plans to hold a reverse auction (i.e., competitive bidding) in the third quarter of 2013, with an annual 

budget of $500 million from the Mobility Fund.

2014 • At least two-thirds of the frozen high-cost support from Connect America Fund must be used as 

required.

• Carriers declining the support amount generated from the cost-model of the Connect America Fund 

will continue to receive support in an amount equal to its 2011 support amount until the first month 

that the winner of any competitive process receives support under the second phase of

implementing the Connect America Fund; at that time, the carrier declining support in the second 

phase will stop receiving high-cost universal service support.

• If carriers accepted incremental support in 2012, then they are required by this time to complete 

broadband deployment to no less than two-thirds of the required number of locations within 2 years.

• FCC will begin disbursing $500 million from the Mobility Fund.

2015 • All frozen high-cost support disbursed under the Connect America Fund must be spent as required. 

Carriers will be required to certify that they have spent high-cost support consistent with FCC 

requirements in their annual filings.

• Carriers receiving incremental support from the Connect America Fund in 2012 are required to 

complete broadband deployment to all required locations.
Appendix III: Federal Communications 

Commission’s Action to Implement National 

Broadband Plan Recommendations Related to 

the Universal Service Fund and Implement the 

USF Transformation Order

Page 38 GAO-12-738 Repurposing USF for Broadband Deployment

Time frame Key Actions and Requirements

2016 Carriers receiving support under the cost-model must offer at least 4 Megabits per second (Mbps) 

download and 1 Mbps upload broadband service level to at least 85 percent of their high-cost locations, 

including those on Tribal lands.

2017 FCC plans to evaluate the need for ongoing support at the set budget levels and determine how best to 

drive support to efficient levels, given consumer demand and technological developments at that time.

2018 • By the end of the fifth year, price-cap carriers must offer at least 4 Mbps download and 1 Mbps 

upload broadband service level to all supported locations, and at least 6 Mbps download and 1.5 

Mbps upload speed to a number of supported locations to be specified.

• After the end of the 5-year planned term, FCC plans to distribute all support for price-cap areas, 

using a market-based mechanism (i.e., competitive bidding) from the Connect America Fund.

Source: GAO analysis of FCC information.
Appendix IV: GAO Contact and Staff 

Acknowledgments

Page 39 GAO-12-738 Repurposing USF for Broadband Deployment

Mark L. Goldstein, (202) 512-2834, or goldsteinm@gao.gov

In addition to the contact named above, Sally Moino, Assistant Director; 

Pedro Almoguera; Colin Fallon; David Hooper; Jennifer Kim; Andrew 

Stavisky; and Nancy Zearfoss made key contributions to this report.

Appendix IV: GAO Contact and Staff 

Acknowledgments 

GAO Contact

Staff 

Acknowledgments 
Related GAO Products

Page 40 GAO-12-738 Repurposing USF for Broadband Deployment

Telecommunications: FCC’s Performance Management Weaknesses 

Could Jeopardize Proposed Reforms of the Rural Health Care Program. 

GAO-11-27. Washington, D.C.: November 17, 2010.

Telecommunications: Improved Management Can Enhance FCC 

Decision Making for the Universal Service Fund Low-Income Program. 

GAO-11-11. Washington, D.C.: October 28, 2010.

Telecommunications: FCC Should Assess the Design of the E-rate 

Program’s Internal Control Structure. GAO-10-908. Washington, D.C.: 

September 29, 2010.

Telecommunications: Long-Term Strategic Vision Would Help Ensure 

Targeting of E-rate Funds to Highest-Priority Uses. GAO-09-253. 

Washington, D.C.: March 27, 2009.

Telecommunications: FCC Needs to Improve Performance Management 

and Strengthen Oversight of the High-Cost Program. GAO-08-633. 

Washington, D.C.: June 13, 2008.

Related GAO Products

(543293)
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