USF Report Shows Scale of Telco ShiftsUSF Report Shows Scale of Telco Shifts

The magnitude of the shift over the last decade becomes clear in a recent report.

The Universal Service Fund (USF) is monitored and reviewed annually. The monitoring report goes beyond just the fund information; it also provides information on the ILECs, as well as detailed information on the disbursement of the funds. A side benefit of the report is that it deals with the changes that have occurred in Telco revenue as reported over the last decade.

The data on those revenue changes gives you an idea of just how much the telco industry has changed over the past several years, with legacy revenue streams declining if not outright collapsing, while relatively newer services like mobile have grown. Here are some key statistics from the section of the USF report entitled, "Industry Revenue by Service Type: 2000-2010":

* Local exchange revenues have decreased from $69.9 billion to $56.9 billion
* Pay phone revenue dropped drastically, from $1.9 billion to $197 million
* Local private line revenue increased from $16.8 billion to $26.8 billion
* Subscriber line charges decreased from $11.5 billion to $7.4 billion
* Access charges decreased from $17 billion to $8.3 billion
* Mobile services increased from $61.5 billion to $111.6 billion
* Toll services dropped from $106.1 billion to $50 billion

This chart of local switched access minutes shows the peak in 2000 and rapid decline of this measure of traditional telco POTS:

Don't feel sorry for the telcos, however: The entire telecom revenue market increased from $335 billion to $446.4 billion over the period in the report.

The USF Monitoring Report
The broader purpose of the USF report, beyond documenting telco revenue trends, is to show what is happening with funding sources for the Universal Service Fund.

There are five sections to the report:

* Section 1 provides the update on industry revenues and the program requirements and contribution factors.
* Section 2 covers the latest data on the low-income, high-cost, schools and libraries, and rural health care support mechanisms.
* Section 3 covers the most recent Census data on subscribership from the Current Population Survey and the American Community Survey.
* Section 4 covers updated Consumer Price Index data and updated interstate access rate information.
* Section 5 covers the latest National Exchange Carrier Association (NECA) data on interstate access minutes.

USF Disbursements
The funds that support the USF are based on a contribution factor. This factor is a percentage that has been as low as 8.7% in 2004 to the highest yet of 17.9% in 1Q 2012, primarily due to the revenue shifts shown above and continuing through today. This upward change in the rate makes it a little difficult for enterprises to predict their telecom bills, except to anticipate that they are increasing due to USF contributions.

The high-cost support program enables eligible telecommunications carriers (ETCs) serving areas with very high costs to recover some of these costs from the USF, leaving the remainder of the costs to be recovered through end-user rates or state universal service support programs.

Eligible schools, school districts, libraries, and education groups that include schools and libraries can receive discounts for eligible services (E-Rate) under the Schools and Libraries universal service support mechanism. The discounts can range from 20% to 90%.

The Low-Income Support Program, Lifeline and Link Up, promotes increased telephone subscribership by providing low-income households with discounts on the monthly cost of telephone service.

One interesting fact is that the number of U.S. households without phone service has been steady at about 4% since 2009. For very low income households, less than $10,000/year, about 8% do not have phones.

The 15th annual "Universal Service Monitoring Report" was prepared for the Federal-State Joint Board on Universal Service. The 91-page report is filled with comprehensive tables. Supplementary material is available in a single compressed (.zip format) file at www.fcc.gov/wcb/iatd/monitor.html. The supplementary material includes extensive tables impractical to include in the printed report.

This report is worth reviewing. It delivers a wealth of information about the carriers, their markets, and how they are changing.