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July 12, 2021

Universal Service Fund Reform Potential Impacts on Twilio's Customers

As federal lawmakers are considering a sweeping infrastructure bill , there’s increased attention on enhanced deployment of broadband networks to people and institutions — how we do it, how it’s funded and what sustainable broadband policy looks like. This could have implications for lots of companies and users, so we want to have a look “under the hood” to see how the programs that exist currently are funded and what reform could look like.

Where are we now?

The Federal Universal Service Fund (USF) is a fund that supports bringing affordable broadband to underserved, rural, and low-income populations. This includes our most rural, remote communities, as well as to schools, health care facilities, libraries and people with low incomes.

Under current law, companies providing interconnected VoIP or telecommunications services to retail customers, including businesses and residences, must contribute to the USF. That includes Twilio, which means customers of our interconnected VoIP or telecommunications services will see that fee on their bills (in addition to federal, state and local regulatory fees and taxes). These providers are the only ones currently subject to the fees (i.e. no internet access providers, and no platform or software providers).

A looming bubble

The Federal Communications Commission (FCC) uses a formula called the “contribution factor” that determines how much providers will pay into the fund based on its interstate and international revenues. As is common practice, providers then pass that amount on to its users. Based on the contribution factor, providers pay a percentage of their end-user interstate telecommunications revenue to fund the USF, and it increases when the industry’s volume of end-user interstate telecommunications revenue decreases. This factor has risen dramatically over the past few years, increasing from 19.5% in 2018 to 33.4% in 2021. Experts estimate the contribution factor will increase above 40% by the end of 2021. This increase is driving federal regulators, advocates and various industry groups to find potential alternatives to the status quo.

So what could it look like?

There are two primary alternatives policymakers and advocates have offered in the past and a newer one making the rounds in DC.

Under the first main proposal, broadband internet access providers, in addition to telecommunications service providers, should be required to pay into the fund. The second proposal would also expand the revenue base by including providers of one-way VoIP. This proposal was originally introduced in a 2012 rulemaking that never resulted in FCC action. Both of these proposals are intended to reduce the contribution factor by increasing the pot of revenues the FCC could draw from.

Other proposals include collecting contributions from companies on every phone number or “connection” they offer.

Another, longer-term proposal has surfaced recently from FCC Commissioner Carr which suggests having “Big Tech” companies pay a portion of their revenue into the USF.

What does this mean for Twilio, Twilio customers and users of its services?

In short, any changes could have major implications — both increasing and decreasing — to what Twilio and its customers would have to pay. If one-way VoIP service becomes assessable, or if the FCC switches to a per-phone-number assessment, it could mean a larger USF obligation for Twilio and higher USF fees for Twilio customers. Twilio’s customers would see relief in the form of decreased USF fees, however, if the FCC decided to assess broadband internet access service (BIAS).

We are watching the space closely and will continue to keep our customers informed about potential changes.

Lauren King is Regulatory Compliance Counsel for North American Communications Policy, Global Public Policy and Government Affairs for Twilio.