What is the Federal Universal Service Fund?

In May of 1997, the Federal Communications Commission (FCC) adopted rules that mandated that telecommunications carriers pay into a federal program called the Universal Service Fund (USF). This fund helps provide affordable telecommunications services for low-income customers and customers in rural areas. It also provides discounts on Internet access for eligible schools, libraries and rural health care providers. The USF is collected from telecommunications carriers and administered by the Universal Service Administration Corporation. They are responsible for disbursing the funds according to eligibility criteria established by the FCC.
There are four components to the Federal Universal Service Fund. They are:

• Low-Income. This program provides telephone service discounts to consumers with qualifying low-incomes.
• High-Cost. This program provides financial support to companies that provide telecommunications services in areas of America where the cost of providing service is high.
• Schools and Libraries. This program helps to ensure that the nation's classrooms and libraries receive access to the vast array of educational resources that are accessible through the telecommunications network.
• Rural Health Care. This program helps to link health care providers located in rural areas to urban medical centers so that patients living in rural America will have access to the same advanced diagnostic and other medical services that are enjoyed in urban communities.

In the past, only long distance companies paid fees to support the Federal Universal Service Fund. In 1996, Congress passed a law that expanded the types of companies contributing to Universal Service. Currently, all telecommunications companies that provide service between states, including long distance companies, local telephone companies, wireless telephone companies, paging companies, and payphone providers, are required to contribute to the Federal Universal Service Fund. Telecommunications companies must pay a specific percentage of their interstate and international revenues into the Universal Service Fund.

Primus and the Federal Universal Service Fund:

Primus' USF expenses are millions of dollars a year. In the competitive industry we are in, we cannot afford to absorb the costs associated with the USF that have been imposed on Primus. Therefore, recovery of our expenses is necessary.

Every telecommunications carrier in the industry must contribute to the USF. All major telecommunications companies are recovering their USF contribution from customers through a separate charge. Most carriers are charging it as a percentage charge that does not vary significantly among the major carriers. Currently, Primus charges only 9.25% on relevant services, where some of our competitors charge over 11%!

Customer Frequently Asked Questions and Concerns:

What is the Universal Service Fund?
In May of 1997, the Federal Communications Commission (FCC) adopted rules that mandated that telecommunications carriers pay into a federal program called the Universal Service Fund (USF). This fund helps provide affordable telecommunications services for low-income customers and customers in rural areas. It also provides discounts on Internet access for eligible schools, libraries and rural health care providers. The USF is collected from telecommunications carriers and administered by the Universal Service Administration Corporation. They are responsible for disbursing the funds according to eligibility criteria established by the FCC.

Why do consumers and businesses have to pay into this fund?
The USF was established to help provide affordable, high quality communications services for everyone. Telecommunications service providers (e.g., companies providing local, long-distance, paging, cellular) are required to contribute to this fund. Primus' estimated portion in 2001 alone is several millions of dollars. We simply cannot absorb those costs. So we are recovering them through charges to our customers.

Why is Primus passing the expense along to customers instead of absorbing it?
While we support the spirit and the principles of universal service, we cannot simply absorb the USF expenses. We believe we are recovering these expenses in as fair and equitable a manner as possible.

What does each Primus customer pay?
The Universal Connectivity Charge is 9.25% of state-to-state and international long distance charges, and on Internet circuits. (ATM, Frame Relay, Private Line, Internet Access and SDSL)

How does this fee appear on Primus customers telephone bill?
The USF charge appears as a separate line item called the FUSF.

Once Primus collects this fee, where does it go?
The funds are collected from telecommunications carriers and administered by the Universal Service Administration Corporation. It is responsible for disbursing funds according to eligibility criteria established by the FCC.

Who actually gets the money?
Beneficiaries of the USF include schools, libraries, low-income consumers, rural healthcare providers and consumers in rural areas.

How much money is Primus making on this?
The purpose of this charge is intended to simply recover our costs. The money collected from the Universal Connectivity Charge enables Primus to recover its Universal Service Fund contributions.

How is it determined what amount Primus has to pay into the Universal Service Fund?
The amount telecommunications carriers are required to pay into the Universal Service Fund is based on a percentage of the carrier's revenues.

Are other telecom companies also planning to pass this charge along to their customers?
The FCC left it up to each individual company to determine how it will recover this expense. All major telecommunications companies are recovering their USF contribution from customers through a separate charge. Most carriers are charging it as a percentage of their customers' long distance charges and the amount of the percentage charge does not vary significantly among the major carriers.

Is the Universal Connectivity Charge Tax Deductible?
The Universal Connectivity Charge is not considered a tax-deductible contribution. This charge should be treated like any other charges for your PRIMUS long distance service. If you have questions about which of your expenses may be considered a tax deduction, you should contact a tax consultant or the IRS.