Outdated USF funding model burdens voice services
We’re taxing the wrong thing. Universal digital access matters, but the way we’re funding it is stuck in the past. Right now, the Universal Service Fund (USF) is funded mostly through charges on voice communication services, things like SIP trunks, contact center voice sessions, and UCaaS voice platforms. The problem? USF dollars are being used to build broadband networks,.
In Q4 2025, the FCC set the USF contribution factor, the percentage applied to eligible services, at 38.1%. That’s the highest it’s ever been. And if your company operates with large-scale voice infrastructure, you’ve already seen how that hits your bottom line. It’s not a small uptick, it’s millions leaking from operational budgets into a fund that’s financing infrastructure that your company may already be helping to build in other ways.
Between 2001 and now, the funding base, the pool of voice revenues the USF taxes, has dropped 69%. At the same time, the contribution factor has jumped over 400%. This is not sustainable. It creates an inverted incentive where using more modern solutions (like IP-based voice) costs more, while broadband services, which benefit most from USF support, contribute very little.
This broken funding logic creates friction in enterprise decision-making. The financial hit from this surcharge limits resources that could otherwise go into innovation, AI, security upgrades, next-generation collaboration tools. Instead of helping businesses modernize, the current system slows them down. Every budget cycle becomes a game of estimating a fee you can’t control. You can project costs for power, bandwidth, and software. USF? Total guesswork.
This is about functional planning. Businesses need predictability. They need alignment between what they’re paying for and what they’re supporting.
Disparity in taxation between voice-dependent and data-driven providers
There’s a structural imbalance in how we fund digital infrastructure. Businesses that rely on legacy or hybrid voice communications, mobile voice, VoIP, SIP trunking, are contributing significantly to USF. Meanwhile, providers delivering data-dominant services over broadband networks contribute little or nothing.
This gap creates a real, measurable financial advantage for broadband-first and SD-WAN providers. They’re able to price more competitively, avoiding fees that enterprise voice providers must pass on to their customers. It penalizes companies who, often for regulatory or operational reasons, can’t walk away from voice applications.
The line between voice and data today is blurry. But the USF system still treats them as if they’re from different eras. For example: voice services on mobile networks are USF-assessable. Many SD-WAN services, which handle essentially the same communications workload over modern infrastructure, are not. The difference is purely definitional, not functional.
Over time, this competitive distortion gets locked in. It creates strong incentives to re-architect solutions specifically to bypass these outdated classifications. Businesses end up designing around taxes, not around best performance or scale.
The imbalance also introduces strategic uncertainty. Suppose you’re planning infrastructure expansion or platform updates. If your revenue model leans even slightly on voice, you’re immediately dealing with higher costs and reduced pricing flexibility. And because most providers pass USF costs directly through to customers, you don’t even control the scale of what you’re being charged.
If your competitors aren’t paying that fee, they can outprice you, and reinvest their savings into features, performance, or customer acquisition. It’s not a level playing field.
A modern funding model would correct these classification issues. The services that benefit from public investment in national connectivity should also share in the cost. That’s the path forward.
Integrating broadband into the USF contribution base can lower surcharges
We’ve already shifted how we spend Universal Service Fund dollars. The FCC moved to support broadband infrastructure years ago. But we haven’t updated how we collect those funds. The result is a legacy taxation structure doing the job of a modern network economy, and failing.
Broadband is now the infrastructure priority. It’s where the USF money is going: schools, libraries, rural community networks, healthcare centers. Yet broadband providers, for the most part, remain outside the contribution base. So the entire cost of building this future-ready infrastructure is being covered by outdated services, voice minutes, conferencing platforms, and other tools that are shrinking in usage and revenue.
Economically, this is flawed. Broadband is an inelastic service, meaning people don’t reduce its use when prices increase. That makes it a stable and rational base for shared contributions. The Brattle Group, working with Carol Mattey on the USForward report, calculated that adding broadband to the USF base could drop the contribution rate from over 30% to below 4%. That’s not speculation; it’s based on actual usage metrics and price elasticity models. The math is clear.
For businesses, this kind of structural reform unlocks immediate and long-term value. Lower contribution rates mean lower operating costs. It reduces financial unpredictability. And it removes the hidden tax burden that disincentivizes companies from future-proofing their communications infrastructure.
This change doesn’t require new tech. Broadband providers already report revenue under the USF system; the framework exists. Implementation is not the hurdle. Political alignment and industry will are.
Expanding the base to include edge providers offers a long-term solution
There’s a broader funding conversation happening too, should edge providers, the companies generating the bulk of internet traffic, contribute to USF?
We’re talking about big players: streaming services, search platforms, cloud computing providers, digital advertisers. They deliver a massive portion of the traffic that travels over broadband networks, the very networks the USF helps finance. The logic is sound: if they generate the demand that drives infrastructure needs, shouldn’t they help fund that infrastructure?
The FCC estimates show this shift could grow the contribution base by up to $2.3 trillion. If implemented, that could nearly eliminate the USF surcharge altogether. But this path, while promising, is not immediate. It touches multiple industries with different regulatory frameworks and fragmented revenue models. Getting consensus across that landscape takes congressional action, policy coordination, and time, years, not months.
For business leaders, this isn’t something that can be counted on today, but it should still be part of the long-range strategy. It’s a signal of where funding conversations are going. But waiting on this fix means remaining exposed to the volatility and inequity of the current model.
Pushing for broadband inclusion now does not exclude future reform. It simply solves the problem that’s costing enterprises money with every billing cycle. Edge provider contribution is a systemic upgrade. Broadband inclusion is the rapid implementation step that reduces cost exposure immediately while preserving the door for broader reform.
Modernizing the USF model fosters predictability and innovation
Cost volatility weakens execution. When enterprises can’t predict expenses, they delay or downscale important projects. That’s what the current Universal Service Fund (USF) model is doing: injecting instability into budgets that should be focused on driving growth through cloud, automation, and AI.
Most providers pass USF fees directly to businesses. These costs are not fixed, nor are they tied to strategic value. They fluctuate every quarter, often without justification, always without warning. In Q4 2025, that rate was 38.1%. Multiply that across voice usage or distributed UCaaS seats, and you’re looking at six- or seven-figure charges with limited forecasting control.
Business leaders are under pressure to justify every line of spending. The current USF setup offers no visibility and limited cost control. That distorts priorities. Instead of investing in resilience, innovation, or customer experience, you’re forced to reallocate budget to an unpredictable surcharge that funds programs outside your operational focus.
Integrating broadband into the contribution base creates a lower, more stable rate. According to modeling based on usage data by The Brattle Group and Carol Mattey, this would reduce the effective contribution factor to below 4%, even at current funding levels. That gives you back financial headroom to think longer-term.
Predictable, fair fees support better resource planning. They allow CFOs, CIOs, and CTOs to align investment cycles with business goals, not with a decades-old tax construct. The more stable the contribution structure, the easier it is to fund the technology that scales competitiveness.
Industry engagement is essential for driving policy reform
Regulatory change only happens when there’s industry momentum behind it. Lawmakers, while essential, respond to execution-ready input from the private sector. That’s where impactful reform of the USF funding structure has to begin.
Today, there’s already leadership in motion. Senators Ben Ray Luján (D-NM) and Deb Fischer (R-NE) co-chair the bipartisan Universal Service Fund Working Group. They are pushing to modernize how the fund works, both in terms of who contributes and how rates are determined. But congressional support alone won’t reshape the system. The private sector, enterprise carriers, technology firms, service providers, must close the gap by offering practical, consensus-driven solutions.
Broadband inclusion is that solution. It’s operationally feasible, cost-reducing, and already partially implemented on the reporting side. Industry leaders should treat this as an execution conversation.
There are clear steps every enterprise can take within the current system. Ask for USF assessment breakdowns from providers. Scrutinize bundled services to ensure fair allocations between voice and data. Conduct two budget scenarios, one with the current 34–40% factor, and one under reformed conditions below 4%. The delta will shape strategic priorities.
Most importantly, share those insights. Policymakers listen when stakeholders present grounded, numbers-driven stories about how tax policy is throttling operational progress. The faster the business community demonstrates readiness and alignment, the faster reform becomes possible.
Key executive takeaways
- Outdated funding model inflates costs: The current USF model taxes declining voice services to fund broadband expansion, pushing contribution rates as high as 38.1%. Leaders should evaluate how this surcharge impacts budget flexibility and innovation investments.
- Competitive imbalance drains resources: Voice-reliant enterprises pay higher fees while data-focused providers avoid them, distorting market dynamics. To stay competitive, leaders should reassess communications infrastructure and seek cost-effective, modern solutions.
- Broadband inclusion reduces tax burdens: Adding broadband to the USF base would lower contribution rates to below 4%, giving businesses immediate cost relief. Leaders should back this reform to unlock capital for growth-focused technology initiatives.
- Edge provider expansion requires long-term strategy: Including streaming, search, and cloud services in the USF base could eliminate the surcharge but requires congressional action and cross-industry alignment. Leaders should support short-term fixes like broadband inclusion while tracking long-term policy options.
- Cost predictability fuels innovation: Quarterly USF rate swings hinder budgeting and delay critical investments. Leaders should push for a predictable, modern fund structure that enables strategic planning and technology scaling.
- Policy change needs industry momentum: Reform won’t happen without unified business support and data-backed pressure on lawmakers. Executives should engage vendors, model USF cost scenarios, and advocate through industry associations to drive practical policy updates.
