A third U.S. Appeals Court has concluded that the Federal Communications Commission is on sound constitutional footing when it comes to delegating oversight of the billions of dollars in government advanced telecommunications subsidy money it hands out annually with a big assist from the Universal Service Administrative Co. (USAC).

The 11th U.S. Circuit Court of Appeals Thursday (December 14) ruled that the FCC is within its authority to delegate administration of those funds through a private company — USAC — because the government regulator maintains control and oversight.

That follows similar findings by the appeals courts in the 5th and 6th circuits.

Congress instructed the FCC to create the fund.

Some groups had challenged the constitutionality of the USAC under the nondelegation doctrine, the legal principle that holds that Congress cannot delegate legislative powers to other entities.

Groups that had challenged the FCC in court had argued that Congress, and by extension the agency, was barred by the nondelegation doctrine from ceding Universal Service Fund oversight to a private company.

“Today’s decision is a victory for the many rural and urban consumers and anchor institutions across the country who rely on the services supported by the federal Universal Service Fund,” USTelecom, the Competitive Carriers Association and NTCA–The Rural Broadband Association said. “The USF has been, and continues to be, a critical tool to narrow the digital divide and help address connectivity gaps. The court’s ruling affirms that Congress’s directive to the FCC — over 25 years ago — to collect contributions in support of this vital fund is constitutional. Other courts considering similar challenges should reach the same conclusion.”

A new study commissioned by INCOMPAS concludes that the Universal Service Fund contribution base should be expanded to include broadband internet service providers (ISPs), but not streamers and other edge providers.

INCOMPAS members, which include streamers Amazon and Netflix, as well as Google, Meta and Dish Network, have been pushing the Federal Communications Commission to add ISPs to those who pay into the fund.

Universal Service Fund reform is expected to be on the FCC’s agenda given the decrease in traditional wireline phone service on which the contribution base is built.

INCOMPAS is all for the FCC tackling the fund’s contribution base, so long as it is focused on ISPs.

“[I]ncluding broadband internet access revenues is the most efficient way to drive down the contribution factor, stabilize the Fund, and correct its distortionary impact,” INCOMPAS president Angie Kronenberg said. “It is also a solution that can be acted upon immediately by the FCC.”

And while some are pushing the FCC to make edge providers pay into the fund given that they wouldn’t have a business without the access to advanced communications the USF is meant to ensure, the study takes issue with that approach.

“We find that various other proposals to include certain edge providers [in the USF contribution base] would arbitrarily increase market distortions and are not in line with economic principles,” the report said. “In addition, these proposals also assert, without reliable evidence, that fees levied on edge providers will not be passed down to consumers. We find that economic principles and empirical trends in the industry suggest otherwise.”

The report argues that since consumers already pay for broadband infrastructure via their ISP bills, making them pay an edge provider subsidy, which would ultimately be passed on to them in some form, would constitute a double payment that could discourage broadband use.
 
The report conceded that some streaming congestion could result in rural broadband providers incurring increased capital expenses, which is why some argue edge providers should have to pay into the subsidy. But it does not concede that congestion is happening, and even if it is, it does not justify making edge providers pay into the fund.

Besides, it said, ”congestion externalities in the context of streaming are only a potential problem in high-cost areas and in most other geographies, as discussed above, they can be and have been resolved through private negotiations and contracting.“

Video streamers and other edge providers are fighting a multi-front war in Washington lately, as Congress applies pressure on the FCC to apply good-faith negotiation rules to over-the-top content providers, as it does traditional video providers, and as hundreds of rural broadband providers and associations call on the agency to make edge providers contribute to broadband buildout subsidies.

A decade ago, the Federal Communications Commission wrestled with the issue of how and whether to regulate the over-the-top delivery of TV programming networks. Though Obama-era FCC chair Tom Wheeler opened a formal inquiry, and then reportedly got as far as working on an item that would define linear programming streams as multichannel video programming distributors (MVPDs), nothing materialized. In that case, the issue was online video provider access to content —  MVPDs are subject to program access and carriage rules — and providng FCC-enforced access to vertically integrated programming to promote competition to traditional video.

With the backing of broadcasters, who have been trying to get more money for their online content, including by pushing for an antitrust exemption from Congress to negotiate for aggregated news content, Senate Commerce Committee chair Maria Cantwell (D-Wash.) last week wrote FCC chair Jessica Rosenworcel asking her to revive the inquiry, this time focused on good-faith negotiation rules related to edge provider aggregation of news content from print and broadcast sources.

Rosenworcel has recently suggested that Congress may have to step in to give the FCC the regulatory authority that the Cable Acts of 1984 and 1992 gave it over traditional video. since those laws did not apply to, or anticipate, OTT.

But she has apparently not ruled it out. "We are carefully reviewing the issue and exploring our options," said an FCC spokesperson.

Also Read: Could the FCC Make Video Streamers Pay Into the Universal Service Fund?

Even before Cantwell sent her letter to Rosenworcel, she and other top senators were sent a letter from hundreds of groups calling on Congress to require streamers and other edge content providers to pay into the Universal Service Fund that subsidizes advanced telecommunications buildouts in rural and other hard-to-reach areas. Currently, the fund depends on traditional landline phone service and its dwindling customer base. ISPs do not pay into the fund other than for their internet phone service offerings.

“The edge provider companies derive enormous value from American families and businesses while contributing extraordinarily little or no financial support for the middle and last mile networks in rural areas,” according to a copy of the letter.

“We pay to connect to the internet and we pay to deliver traffic to our home office,” the letter said. “Then, we invest in our own networks and the last mile. Meanwhile, edge providers continue to send increasing amounts of traffic into our networks, which pushes against the limits of our capacity forcing expensive upgrades. Recovering those costs from our rural customers is very difficult or impossible, while the edge providers pay very little or nothing at all for the delivery of their traffic.”

INCOMPAS, whose members include Amazon, Facebook, Google amd Netflix, have argued that rather than going to the edge providers, the FCC should instead look at including ISPs in the Universal Service Fund (USF) subsidy pool, given that the subsidy money is being transitioned from landline phone service to broadband buildouts.

One argument against that move has been that the USF fees are passed along to consumers, so the inclusion of ISPs would raise consumers’ bills. That could discourage uptake of service regardless of how universal its availability is.

The Biden administration is pumping more than $60 billion in subsidies through various infrastructure-related programs to make sure that, by 2030, broadband is both universally accessible and affordable.

A second U.S. Appeals Court has concluded the Federal Communications Commission is on sound constitutional footing when it comes to delegating oversight of the billions of dollars in government advanced telecommunications subsidy money it hands out annually with a big assist from the Universal Service  Administrative Co. (USAC).

The 6th U.S. Circuit Court of Appeals, in a unanimous decision handed down Thursday (May 4), said, “USAC’s role in handling the administrative functions of billing the contributing carriers and disbursing the universal-service funds, is permissible ministerial support and, further, reflects its subordination to the FCC.”

Several groups had argued that Congress, and by extension the FCC, was barred by the nondelegation doctrine from ceding Universal Service Fund oversight to a private company, but the court said that was not the case here. “Because USAC is appropriately subordinated to the FCC and serves a fact-gathering and ministerial function without exercising decision-making power, there is no private-nondelegation doctrine violation,“ the court ruled.  

The nondelegation clause generally holds that Congress cannot delegate legislative powers to other entities. The 6th Circuit said Congress had provided the FCC delineated discretion and the agency had used it properly.

Back in March, the 5th U.S. Circuit Court of Appeals also concluded that USAF was sufficiently subordinate to the FCC not to run afoul of the clause, which generally holds that the government can't delegate its powers to private entities.

The 5th Circuit pointed out that federal agencies are allowed to “reasonably condition” their actions on “determinations by outside parties.” In the case of the USF and USAC, the conditions were reasonable and thus USAC was properly subordinate to the FCC.

"Another unanimous court of appeals panel has reaffirmed the constitutional validity of the system Congress established to ensure that all Americans have affordable access to telecommunications service and advanced services like broadband," said Andrew Schwartzman, who represented the Benton Institute for Broadband & Society, which intervened in the cases on the FCC’s behalf. “Joining the 5th Circuit which issued a similar decision 6 weeks ago, the U.S. Court of Appeals for the 6th Circuit ruled that Congress properly gave the FCC authority to make sure that rural, educational, library and medical users have affordable access to broadband and other telecommunications services.”

“Today’s decision is a win for the millions of rural and urban consumers as well as anchor institutions that rely on the services supported by the federal Universal Service Fund,” the Competitive Carriers Association, NTCA–The Rural Broadband Association and USTelecom–The Broadband Association said in a joint statement. “As the court decision today confirms, Congress’ direction to the FCC — more than 25 years ago — to collect contributions in support of the universal service program is constitutional. We believe that other courts considering similar challenges should come to the same conclusion.”

A bipartisan, bicameral legislative effort to expand the contribution base of the Federal Communications Commission’s Universal Service Fund broadband subsidies has been revived.

The Reforming Broadband Connectivity Act, initially introduced in November 2021 by Sen. Amy Klobuchar (D-Minn.), was reintroduced this week in both the Senate and House.

The bill does not tell the FCC how to expand the base, but does direct it to make changes to expand availability and access to telecommunications services after studying: 1) the need to expand the contribution base and 2) how to reform the contribution system via a rulemaking. It is required to assess the impact of any changes on consumers, businesses and senior citizens.

Currently, the USF advanced telecommunications subsidies come from traditional telecoms, but there have been calls to expand those contributions to internet service providers and edge providers, the former because broadband is now the go-to advanced telecom service while the traditional phone base of subsidies is dwindling.

Also: Edge Providers Tell FCC to Add ISPs, Not Edge Providers, to USF Contribution Base

Those who want edge providers such as Google, Amazon or Facebook to contribute eagerly eye their big pockets and point to the importance of broadband buildouts to their business models.

According to bill fan NTCA-The Rural Broadband Association, joining Klobuchar in reintroducing the Senate bill were John Thune (R-S.D.), John Hickenlooper (D-Colo.), and Jerry Moran (R-Kan.). Backing the bill in the House were Reps. Joe Neguse, (D-Colo.), Hal Rogers (R-Ky.), Lizzie Fletcher (D-Tex., Glenn Grothman (R-Wis.), Angie Craig (D-Minn.),and Mike Gallagher (R-Wis.).

“NTCA applauds the leadership in both chambers in seeking to chart a course for steadier long-term support of USF programs and promote achievement of our country’s universal service mission,” NTCA CEO Shirley Bloomfield said. “As we continue to rely on broadband for just about every aspect of daily life, including working and learning remotely, the Universal Service Fund is key to making critical communications services both available and affordable. Efforts to examine and address continuing erosion in the system that funds the USF will be essential to achieve and sustain a shared vision of universal connectivity. 

“Sens. Amy Klobuchar (D-Minn.) and John Thune (R-S.D.) recognize that the contribution mechanism must be reformed to preserve connectivity for rural Americans,” USTelecom senior VP Brandon Heiner said. “Directing the FCC to initiate a rulemaking to expand the contributions base will help secure the future of universal service.” ■

A federal appeals court has upheld the constitutionality of the way the Federal Communications Commission hands out billions of dollars in subsidies for broadband and other advanced communications services.

At issue were the Universal Service Fund (USF) and the FCC’s use of a private company, the Universal Service Administrative Co. (USAC), to administer the distribution of those funds to subsidize broadband and phone service to high-cost areas and low-income households nationwide.

Suing the FCC were phone provider Consumers’ Research and a group of its subscribers.

In an opinion released Friday (March 24) rejecting a challenge to that authority, the 5th U.S. Circuit Court of Appeals concluded that the FCC did sufficient due diligence on USAC proposals, which the agency independently considers based on data it collects and other relevant information, and that the regulator was sufficiently in charge not to run afoul of the law.

The challenge was principally based on the assertion that USAC was not “sufficiently subordinate” to the FCC to pass constitutional muster.

The 5th Circuit pointed out that federal agencies are allowed to “reasonably condition” their actions on “determinations by outside parties.” In the case of the USF and USAC, the conditions were reasonable and thus USAC was properly subordinate to the FCC.

“To be clear,” the court said, “agencies may delegate to private entities so long as the entities function subordinately to the federal agency and the agency has authority and surveillance” over its activities.

The USAC makes recommendations to the FCC, which are not binding until the commission signs off on them, the court pointed out. The FCC also allows telecoms to challenge USAC proposals directly to the regulator and “often” grants relief, the court said. The FCC also dictates the amount of the contribution telecoms have to make to the fund. 

All of that shows the FCC has sufficient control of the process for the delegation not to run afoul of the private nondelegation doctrine (under Article I of the Constiution) that prevents the delegation of or regulatory oversight to private entities, the court said.

Andrew Schwartzman represented the Benton Institute for Broadband & Society, which filed a brief in the case in support of the FCC. 

“Coming from one of the more conservative courts in the country, this decision is a ringing ratification of the system Congress established to ensure that all Americans have affordable access to telecommunications service and advanced services like broadband,” he said after the decision was issued. “This should not come as a surprise but once the USF was subjected to a legal challenge, the Benton Institute for Broadband & Society joined with its allies to defend this critical mechanism for ensuring universal broadband service.” 

"NaLA is pleased with this decision [because] the USF and Lifeline in particular provides targeted support to low-income Americans who struggle to afford essential communications services necessary to participate in our digital society," said David Dorwart, chairman of the National Lifeline Association. "NaLA is proud to serve these consumers and ensure they can connect to family, community, jobs, education, telehealth and other service using our members’ mobile voice and broadband solutions."

"We are pleased to see the Fifth Circuit uphold the FCC's authority to administer the Universal Service Fund," said Angie Kronenberg, presdient of INCOMPAS, whose members include edge providers rooting for as universal service as possible. "This is a big win for the FCC and a big win for the millions of Americans who rely on this program. While we are delighted at today's result, we believe reforms to the USF are necessary to ensure this critical service can continue to exist."■

NCTA: The Internet & Television Association has nominated Charter Communications VP, regulatory affairs Christine Sanquist to the Universal Service Administration Co., which oversees billions of dollars in the agency's Universal Service Fund broadband subsidies.

By law, the USAC's board of directors has to have a representative from a cable operator, a post currently held by Comcast VP, regulatory affairs Beth Choroser, whose term expires at the end of this year.

Sanquist's duties at Charter include dealing with the USAC and other federal subsidy programs supporting broadband and voice. Those programs include the Rural Digital Opportunity Fund, the Affordable Connectivity Program, the Rural Health Care program, and the E-Rate program, which covers rural, low-income and educational subsidies.

Before joining Charter, Sanquist was an associate in the Communications, Internet and Technology group at law firm Jenner & Block LLP.

She also has past history with the FCC, beginning her career there as an intern in the office of commissioner (and later chair) Mignon Clyburn and then as an attorney in the Wireline Competition Bureau. ▪️

A group of Democratic legislators have introduced a bill to create a nonprofit to help the government and its various broadband subsidy programs close the digital divide.

The goal of the Digital Equity Foundation Act is to close the equity, inclusion and literacy gaps that stand between current broadband use and the Biden administration’s goal of universal broadband deployment.

The bill would create a nonprofit foundation to “leverage public and private investments.”

The public investments include tens of billions of dollars, most going to the states, in broadband infrastructure and uptake subsidies through the National Telecommunications & Information Administration, which is overseeing most of the new broadband subsidies, and the Federal Communications Commission, which oversees some COVID-19-related subsidies and its Universal Service Fund.

The foundation will “award grants, support research, provide training and education, engage with stakeholders, collect data, and promote policies to improve digital equity outcomes,“ the legislators said in a joint statement Thursday (Sept. 15) unveiling the bill.

“As our world rapidly shifts online, Americans must be equipped with the knowledge and skills to use technology properly and successfully,” said Sen. Ben Ray Luján (D-N.M.), chair of the Communications Subcommittee and lead sponsor of the bill. “That’s why I’m introducing legislation that creates a long-term solution to close the divide on digital equity.”

Joining Luján in sponsoring the bill are Sens. Jeff Merkley (D-Ore.), Martin Heinrich (D-N.M.), Ed Markey (D-Mass.), Richard Blumenthal (D-Conn.), and Amy Klobuchar (D-Minn.). Rep. Doris Matsui (D-Calif.) is lead sponsor of a House version. ■

INCOMPAS says one of the keys to saving the FCC's Universal Service Fund subsidy program is to make internet service providers (ISPs) pay into it.

Currently the fees to support the multi-billion-dollar program to get advanced communications services to low-income and rural residents, as well as schools and libraries, come from dwindling voice and telecom service rather than broadband network providers.

As the FCC ponders ways to shore up the fund as it prepares a mandatory report to Congress due August 12, INCOMPAS, which represents streaming, communications and technology companies, has issued a fact sheet to help make its case.

INCOMPAS points out that revenue from telecom USF supporters has fallen precipitously -- from $68.1 billion in 2004 to $29.1 billion in 2021 -- causing the USF fee, which is passed on to customers, to rise to 33% and likely to 40% soon.

Also: Could the FCC Make Video Streamers Pay Into the Universal Service Fund?

INCOMPAS deals with the issue of why USF needs to be saved if Congress is separately putting tens of billions into broadband buildouts through various programs, including the massive infrastructure legislation.

The group says that one issue is that most of that money is going to deployment rather than affordability programs like the USF subsidies to low-income residents. "It is unlikely that Congress’ funding will meet all the ongoing needs that the USF supports," it says.

"The facts are clear when it comes to USF, delay is not an option," said Angie Kronenberg, chief advocate and general counsel for INCOMPAS. "Evolving USF so that its revenue base of support includes broadband internet access services is an immediate, common-sense solution that provides a sustainable long-term solution for the program."

Congress has been kicking the tires on legislation (the Funding Affordable Internet with Reliable Contributions [FAIR Contributions] Act) that would require the FCC to study the feasibility of extending the fee to ISPs, but also to streamers and other edge providers. Sen. Roger Wicker (R-Miss.), who authored the bill, has said both ISPs and the edge providers were included because: "These companies have benefited from the connectivity the USF supports but have not yet had to contribute." ■

The time has finally come to require Silicon Valley giants to share an infinitesimal slice of their enormous profits to close the digital divide. On a bipartisan vote, the Senate Commerce Committee recently approved S. 2427, the Funding Affordable Internet with Reliable (FAIR) Contributions Act, which next heads to the Senate floor.

Last summer, U.S. Sens. Roger Wicker (R-Miss.), Shelley Moore Capito (R-W.Va.) and Todd Young (R-Ind.) introduced the legislation, which would direct the Federal Communications Commission to conduct a study into the feasibility of collecting Universal Service Fund (USF) contributions from internet edge providers, such as Google, Facebook and others. 

“These companies have benefited from the connectivity the USF supports but have not yet had to contribute,” Wicker explained.

Despite the fact that the combined annual revenue of technology companies on Forbes's Global 2000 list climbed from about $3.3 trillion to a record $4 trillion over the last year, these wildly wealthy companies are still fighting to keep their coffers closed.

But America needs their help.

Also: Big Tech to FCC: Drop Inquiry Into Universal Service Fund Fees

If the $65 billion for broadband set aside by the Infrastructure Investment and Jobs Act (IIJA) is spent wisely, all Americans can be reached with a high-speed internet connection. The problem is that adoption challenges remain, and an ongoing source of funding is needed to support broadband affordability for rural and low-income Americans, as well as schools, libraries and rural healthcare providers over the long haul. This is the primary purpose of the Universal Service Fund, but its funding is on the fritz. In fact, a recent study by EconONE managing director Hal Singer and consultant Ted Tatos indicates the current USF mechanism is unsustainable and will fail to meet the needs of its target consumer base within the next five years. Meanwhile, the Affordable Connectivity Program (ACP), which was established by the IIJA to help low-income Americans buy broadband, is only funded to the tune of $14.2 billion. To keep it going, we will need either a new appropriation from Congress or USF will have to pick up where ACP leaves off, making contribution reform an even more urgent solution.

Currently, USF is funded by requiring telecommunications companies to fork over a percentage of their interstate end-user revenues, which is known as the program’s “contribution factor.” It’s as old school as it sounds — a “tax” on “long distance” telephone calls. Even your grandmother would say this is outdated.

Given that older Americans and those living in older homes are far more likely to have landline phones, the reality is that the tax disproportionately impacts seniors and Americans with lower incomes. Among householders aged 75 and older, 75% have landlines in their homes, compared to less than 5% for householders under 25. And with fewer dollars being added to their personal bank accounts every month, the fees consume a greater portion of their incomes, as pointed out by a Government Accountability Office report.

What’s more, the USF’s revenue base is ever-shrinking, which can only be offset by the contribution factor ever-increasing. In 2019, just over 31% of U.S. households still had a landline, a steep decline from the more than 90% in 2004, 15 years earlier. In 2016, the fund was stretched to support broadband as well as phone service, so widening the contributions base to include broadband-related tech company revenues is a logical, fair and reasonable modernization. Drawing dollars from across the greater internet ecosystem, rather than from traditional phone service alone, could bring the contribution factor down to a small percentage that edge and internet service providers could tout as a business decision that would expand the ecosystem for the benefit of everyone.

America’s lawmakers aren’t the only ones who recognize the imbalance of Big Tech benefiting from broadband networks without backing them. The European Commission recently proposed the signing of a declaration of principles and rights underpinning digital transformation in the European Union, including “developing adequate frameworks so that all market actors benefiting from the digital transformation assume their social responsibilities and make a fair and proportionate contribution to the costs of public goods, services and infrastructures for the benefit of all Europeans.”

In South Korea, Big Tech and video-streaming companies generating 1% or more of total internet traffic, or those with at least 1 million users, pay a fee to support the provision of network capacity. So, while the Motion Picture Association, which represents streaming content providers like Netflix, Hulu, Disney Plus and others, is telling the FCC that expanding the USF contribution base to include them would “present significant implementation issues that would render such an approach unworkable," other countries have already worked it out.

Also: FCC's Carr: Make Big Tech Pay for USF Subsidies

Another potential solution for saving USF is tapping into huge internet-related tech company revenues through a digital advertising services fee. According to projections from Singer and Tatos, “Even if the current USF funding levels were increased to $17.5 billion annually (generously assuming a 75% participation rate by eligible, low-income households, and a $50 per month subsidy regardless of location), by 2029 the contribution factor on digital advertising would only reach 7.3%” — compared to a contribution factor today that’s greater than 25%.

As FCC commissioner Brendan Carr pointed out a year ago, “Ending Big Tech's free ride on the internet would represent a long-overdue return to the historic compact under which the businesses that benefit from a network pay their fair share for it.”

Fortunately for all Americans, this proposal is finally on track, thanks to the FAIR Contributions Act. Let’s hope a resounding “yes” is soon heard, once again, from both sides of the Senate floor. ▪️

Powerful computer companies told the Federal Communications Commission it would be a waste of the the agency’s — and stakeholders’ — time and money to continue trying to make them pay a regulatory fee to the FCC.

Editor's note: This story initially said that the filing was on Universal Service Fund fees rather than FCC fees. We regret the error.

Currently, edge providers such as Google, Facebook, Apple and others who benefit from unlicensed spectrum do not pay, as to broadcasters, cable operators and satellite operators, who are all FCC licensees. But the FCC has asked whether that needs to change.

Also: Who Should Pay for Universal Broadband Connectivity?

In a resubmission of previous comments, INCOMPAS, the Computer & Communications Industry Association and the Digital Media Association said that since the time of that first comment submission last year, there is overwhelming opposition to considering adding Big Tech to the fee categories and no justification for imposing new levies on “large technology companies.”

To sum it up, they said, INCOMPAS, CCIA and DiMA believe it is time for the FCC to close this aspect of the proceeding “so as not to waste any additional resources of the Commission or stakeholders.”

Separately, the Consumer Technology Association led a group of associations, including INCOMPAS, in a letter to the FCC this week pointing to the economic harm of imposing regulatory fees on unlicensed spectrum users and also asking the FCC to terminate the proceeding.  ■

American Broadband & Telecommunications has agreed to pay more than $16 million to settle a Federal Communications Commission complaint that the company had violated its Lifeline program rules, including by applying for broadband subsidy money for ineligible participants.

American Broadband is a competitive local exchange carrier (CLEC) providing consumer and broadband services in the Midwest.

The company has already paid back $15,063,935.45 to the Universal Service Fund for USF subsidies the FCC said were either for “ineligible and duplicate Lifeline accounts,” or for people who had died.

There is an additional payment of $1,487,249.99. The FCC said the company had also failed to de-enroll ineligible subs, filed to have proper procedures for complying with FCC rules and failed to adequately screen, train or supervise third-party sales agents.

In addition to the company payments, company owner Jeffrey Ansted agreed to pay $67,050 to the U.S. Treasury. ■

The Senate appears to be getting serious about making edge providers including streamers and search engines pay into the Universal Service Fund. The USF subsidizes advanced telecommunications — essentially broadband — to low-income and hard-to-reach areas of the country.

Currently, the fund is paid into by telecom providers, but with the move from traditional phones to broadband as the connectivity of choice, the sustainability of the subsidy program is at issue.

The Senate Commerce Committee on Wednesday (May 11) approved S. 2427, the Funding Affordable Internet with Reliable Contributions (FAIR Contributions) Act, which now heads to the Senate floor.

Edge providers still have plenty of time and opportunity to lobby against the move since the bill only requires the Federal Communications Commission to study the feasibility “and effects” — the additional language was added as an amendment — of making edge providers pay into the fund.

Streaming content providers are telling the FCC it would be unwise and unworkable for Congress to expand the broadband subsidy base to include over-the-top video and others in the vague “Big Tech” basket and essentially impossible for the FCC to administer.

Also: OTT tells FCC That USF Streaming Fee Would Be Impossible to Administer

Committee ranking member Roger Wicker (R-Miss.), who authored the bill, said it was about the sustainability of the fund and that it would require Big Tech, as well as broadband providers and other users, to be added to the base of those having to pay into the fund. If past is prologue, that cost will be passed along to customers.

Wicker said expanding the base would ensure support for rural broadband "for years to come" and lower consumer bills. "These companies have benefited from the connectivity the USF supports but have not yet had to contribute," he said.

Also approved was a related bill, the 3692 Network Equipment Transparency (NET) Act, which requires the FCC to “evaluate and consider the impact of the telecommunications network equipment supply chain on the deployment of universal service." The FCC is specifically asked, to the extent there is relevant data, to "determine whether a lack of network equipment significantly impacted the deployment of advanced telecommunications capability during the applicable year.”

Bill backer Sen. John Hickenlooper (D-Colo.) said that closing the digital divide is a bipartisan goal and that a resilient supply chain is a key to achieving that “federally funded goal.” He said companies in his home state of Colorado were complaining about delays in getting batteries, antennas and fiber-optic cable, all crucial to broadband buildouts.

Hickenlooper said the bill will charge the FCC with monitoring and reporting any supply chain delays to Congress. ■

The FCC says it has authorized another almost $200 million in rural broadband funding, bringing the total it has handed out since July 2021 in the Rural Digital Opportunity Fund to over $5.2 billion.

The money, which comes from the FCC's Universal Service Program high-cost fund, will go to broadband buildouts in 26 states and the Northern Mariana Islands. It is the ninth round of RDOF funding.

“We need to connect everyone, everywhere, and today’s announcement will open new opportunities to serve communities that need high-speed, reliable broadband service,” said FCC Chairwoman Jessica Rosenworcel. "With proper oversight, this program can advance our goal of closing the digital divide.”

Also: FCC Opens RDOF Application Window

Rosenworcel created the Rural Broadband Accountability Plan to monitor the program for waste, fraud, abuse, and transparency.

Among the steps the FCC has taken to ensure proper oversight included 1) sending letters to 197 applicants where there appeared already to be service -- ISPs definitely don't want government money being spent on overbuilding existing providers and 2) denying waivers for bidders who "have not made appropriate efforts to secure state approvals or prosecute their applications," denying them what would have been over $350 million in funds. ■

Streaming content providers are telling the FCC it would be unwise and unworkable for Congress to expand the broadband subsidy base to include over-the-top video and others in the vague "Big Tech" basket and essentially impossible for the FCC to administer.

Currently, Universal Service Fund subsidies are levied on telecom services, not broadband, but with traditional phone service waning, that contribution base is withering as well, leading some to suggest that online behemoths be brought into the subsidy fold. Since those telecom subsidies are passed on to subs on monthly bills, levying them on streamers would almost certainly raise the OTT video price to consumers, though that was not the tack the Motion Picture Association was emphasizing in its comments on the FCC's inquiry into how to keep the USF fund sustainable.

In comments on the FCC's upcoming report on the future of USF, MPA counted the ways in which getting Congress to expand contributions to broadband content providers including streamers was a nonstarter, saying  that would "(1) exceed the Commission’s authority, (2) be inadvisable as a matter of policy, and (3) present significant implementation issues that would render such an approach unworkable."

Also: Network Affiliates Push FCC for OTT Must Carry

They told the FCC that the contribution problem can't be fixed by making streamers and other online services -- MPA suggests those would include online advertising, cloud services, online marketplaces -- subject to USF fees.

MPA represents Netflix Studios, LLC, Sony Pictures Entertainment Inc., Paramount Pictures Corporation, Universal City Studios LLC, Walt Disney Studios Motion Pictures, and Warner Bros. Entertainment Inc. OR put another way, a veritable Who's Who of streaming content players -- Netflix, Disney Plus, Hulu, ESPN Plus, Peacock, Paramount Plus, Crunchyroll, HBO Max.

They told the FCC that suggestions that streamers "disproportionately" get the benefits of broadband deployment while paying nothing to support broadband nets is false.

For one thing, they argued, they have been investing billions to develop programing that is highly valued by consumers and broadband buildouts allow those users to get even more value from their broadband service dollar. Then there are the investments in content delivery networks (CDNs) to help alleviate traffic issues and in versatile video encoding and variable bit rates to make data transfers more efficient.

They also say that from a policy perspective, targeting specific uses of broadband, say streaming rather than telehealth of IoT applications, does not make sense because it could hinder or favor a particular use.

Even if the FCC were to recommend that Congress expand the USF contribution base to include online services, it would create a host of intractable administrative problems, on which it elaborated:

"[O]nline services do not require Commission licenses to operate, there is no effective cap on the number of providers in the marketplace, and that number is always changing," MPA said. "Online platforms, including streaming services, social media networks, advertising platforms, and online marketplaces, are continually entering and exiting the market, creating a situation in which the Commission would be unable to properly determine which firms must pay contributions. USF
cannot be assessed on such a dynamic set of services in any way that is 'specific [and] predictable.' Moreover, the diversity of online business models and services makes 'equitable and nondiscriminatory' USF contributions impossible to structure, administer, or enforce."

As edge providers have moved more into Washington's regulatory sites, there have been various efforts to bring over-the-top video into the FCC's ambit, including pushes to define over-the-top video providers as MVPDs and subject them to program access and carriage requirements, as the FCC once proposed under then FCC chairman Tom Wheeler, and to put them under the FCC's must-carry regime as well.

ISPs have also argued that the Netflix's of the world were pushing for middle-mile net neutrality to avoid paying for the upgrades needed to handle the increased traffic load their OTT services generate. ■

INCOMPAS, whose members include Amazon, Facebook, Google, Netflix and Twitter, is telling the FCC to expand the contribution base of Universal Service Fund broadband subsidies from telecoms to ISPs, but that no way should it make edge providers pay into the fund.

The FCC sought comment on what, if any, changes it should make to the Universal Service Fund, which is currently supported by fees on phone service, even while it has been transitioned to focus on broadband service as the nation's new baseline communications service.

In its filing, the Internet Innovation Alliance points out that USF "draws from a pool of landline phone service revenues, which shrunk from $72.3 billion in 2010 to $47.5 billion in 2019."

Some have suggested that big, bandwidth-intensive edge providers -- like Amazon, Facebook, Google, Netflix and Twitter -- should also be hit up for money to help close the digital divide.

Also: Could the FCC Make Video Streamers Pay Into the Universal Service Fund?

But in its filing, INCOMPAS counted the ways that making edge providers pay was a bad idea, including arguing they already contribute in other ways.

1: "The FCC does not have authority to require edge providers to
contribute to USF." IMCOMPAS says that the USF fund is in a "crisis," -- a declining base of phone customers, whose fees feed the fund, as broadband customers, on whom no fee is levied, explode, so the FCC should focus on solutions it has authority to impose -- fees on broadband service for one thing." The FCC...does not have the authority to require edge providers to contribute to USF and would need congressional action to do so," it told the FCC.

2: INCOMPAS says edge providers are not receiving a "free ride" from USF. "In reality, every business that is using a USF-assessed service contributes to the USF, including edge providers," it says. "For example, companies using interconnected VoIP in their business operations are contributors to the USF just like any other subscriber." And besides, it says, it is all those online content services that drive demand for broadband service and thus benefits ISPs and their subs.

"Indeed, it is the edge providers’ products that are contributing to the demand for BIAS services and the incentive to build more BIAS networks that are faster and more robust," INCOMPAS said. "This investment is far from a “free ride.” To stretch the metaphor further, what good is there in building a rollercoaster if there is no one bringing in the customers to ride it?" ■

The FCC is starting to get input on its examination of the future of the Universal Service Fund. That input includes whether to make ISPs pay into the fund, as telecoms currently do, given that the baseline advanced communications service that USF is paying for is increasingly broadband rather than the phone service the program was designed for.

Also on the table is whether to make streaming services pay into the subsidy given that they are riding that broadband service into homes.

As edge providers have moved more into Washington's regulatory sites, there have been various efforts to bring over-the-top video into the FCC's ambit, including pushes to define over-the-top video providers as MVPDs and subject them to program access and carriage requirements, as the FCC once proposed under then FCC chairman Tom Wheeler, and to put them under the FCC's must-carry regime as well.

ISPs have also argued that the Netflix's of the world were pushing for middle-mile net neutrality to avoid paying for the upgrades needed to handle the increased traffic load their OTT services generate.

USF comments are due this week after stakeholders got an extension of the original January 31 deadline.

The FCC sought comment specifically on the impact of the Infrastructure Investment and Jobs Act's $65 billion investment in broadband on the Universal Service Fund advanced communications subsidy program.

That was the focus of the filing this week by the Communications Coalition of Kansas, which told the FCC that broadband networks will need money to upgrade because of the explosive increase in data on rural networks, driven primarily by video streaming services.

Also: ISPs Point To Their Broadband Subsidy Efforts 

The group said that Big Streamers -- the video distribution version of the current Washington epithet "Big Tech"-- made trillions of dollars while contributing "extraordinarily little" to support rural middle-mile and last-mile networks. Meanwhile, it said, rural ISPs invest millions in their networks per year, a dynamic the group said was "increasingly untenable."

The coalition stopped short of outright calling for streamers to pay into USF, but only by a whisker. "[W]e request that the FCC examine ALL the costs associated with providing broadband services and do whatever it can to end the free ride enjoyed by Big Tech and Big Streamers."

In its filing, the Ad Hoc Telecom Users Committee, comprising INCOMPAS (whose members include computer and web companies), NTCA – The Rural Broadband
Association, Public Knowledge, the Schools, Health & Libraries Broadband (SHLB) Coalition, and the Voice on the Net Coalition, focused on ISPs, not streamers.

The coalition told the FCC it was time to "expand the services that pay into the USF to include broadband internet access services (BIAS) ... [i]ncluding BIAS revenues in the contribution base is smart and equitable public policy that the FCC can implement quickly." 

FCC Commissioner Brendan Carr made it clear where he still stood on the issue, which is been squarely behind making Big Tech pony up.

"Yes, the FCC should require Big Tech to start contributing a fair share," he tweeted in response to this story. "Consumers pay their own Internet bills PLUS an additional amount into a federal program that funds efforts to bridge the digital divide," he said. "Big Tech benefits from that program and should start contributing."■

A new bill, the Reforming Broadband Connectivity Act, is asking the Federal Communications Commission to look beyond the customers of declining landline phone service for the subsidies it will need to power universal broadband.

Currently, the FCC‘s Universal Service Fund support for broadband in rural and lower-income areas is primarily subsidized by fees on traditional landline service, in part because it was unclear whether the regulator had the authority to such fees on broadband providers.

Sens. Amy Klobuchar (D-Minn.), co-chair of the Senate Broadband Caucus, and John Thune (R-S.D.) have teamed up on a bill that charges the FCC with opening a rulemaking to “reform the contributions system, taking into account the fairness and the relative burden any changes in fees will have on consumers and businesses, as well as the impact the proposed changes to the contribution system will have on seniors.”

Also: FCC Tops $2 Billion in Emergency Broadband Funds for Schools, Libraries

USF fees are passed along to customers on their monthly bills.

“In 2021, we should be able to bring high-speed internet to every family in America — regardless of their zip code,” Klobuchar said in a statement. “This bill will help ensure we have the resources to keep the Universal Service Fund strong so we can continue to expand access to broadband."

Added Thune: “It is crucial that rural communities across South Dakota have access to reliable broadband services.” 

The senators pointed out that relying on landline subsidies for USF, which supports rural health care, service to low-income households and school and library broadband access, even as landline use declines in favor of wireless and VoIP, "places a disproportionate impact on seniors, who are significantly more likely to use a landline than younger adults."

The Biden administration is hardly relying on the USF alone to close the divide. In fact, it has been arguing that the $65 billion it has allocated for broadband buildout and adoption in the new infrastructure package that passed in Congress — plus earlier, COVID-19-related, emergency broadband funding — should be enough to get the job done, though it was unclear whether that presumed continued stable USF funding.

The Federal Communications Commission has committed another $1 billion-plus in funding for emergency (COVID-19-related) broadband connectivity for schools and libraries.

Also Read: FCC Opens New Connectivity Fund Filling Window

The FCC said Tuesday that in its second round of funding, $1,159,681,350.34 will be going to 2,471 schools and 205 libraries. The money can go toward broadband service and connectivity devices. It can also go for off-campus learning, given the pandemic.

So far, the FCC has committed $2,362,788,847.22 ($1,203,107,496.88 in the first round) and said it has met its own goal of responding to half of the applications within 60 days of the closing of the first filing window.

The most recent filing window opened Sept. 28 and closes Oct. 13.

As part of the massive COVID-19 American Relief Act, the FCC had 60 days to set up an e-rate Emergency Connectivity Fund (ECF) of $7.6 billion (minus $1 million to pay for FCC Inspector General oversight of the program). The Universal Service Administrative Co. which oversees the FCC's ongoing Universal Service Fund (USF) subsidy program, is administering the emergency fund, which is separate from USF subsidies.

The Federal Communication Commission has handed out over $1.2 billion in the first wave of the Biden administration’s Emergency Connectivity Fund for schools and libraries.

The actual figure is $1,203,107,496.88 for 3,040 schools, 260 libraries and a couple of dozen broadband consortia. There is still almost $5 billion left, with the second filing window opening Sept. 28 and extending through June 30.

The Biden Administration made sure that first wave got some publicity, with Vice President Kamala Harris, who was deputized by the President with shepherding the universal broadband issue, announced the figure on The View.

Also Read: FCC Unanimously Approves $7 Billion-Plus Emergency Connectivity Fund Framework

The FCC said the money will pay for more than 3 million devices and 774,115 broadband connections, including for more than 3 million students the agency has been assured would not otherwise have computers or connections or both.

“This first round of funding in the Emergency Connectivity Fund will help thousands of schools and libraries across the country provide critical online resources to their students, staff and library patrons,” acting chairwoman Jessica Rosenworcel said in a statement.

As part of the massive COVID-19 American Relief Act, the FCC had 60 days to set up an e-rate Emergency Connectivity Fund (ECF) of $7.6 billion (minus $1 million to pay for FCC Inspector General oversight of the program). The Universal Service Administrative Company, which oversees the FCC's ongoing USF subsidy program, is administering the emergency fund, which is separate from USF subsidies.

The money goes to eligible schools and libraries to pay 100% for the costs of equipment and/or advanced communications service for students both in school and remote learning, and for library patrons both in libraries and remotely. The money is available until 2030.

FCC Commissioner Brendan Carr said that the best way to fund the FCC's Universal Service Fund advanced communications subsidies is to make Big Tech pay the freight.

Citing a new study from economist Hal Singer and Ted Tatos, Carr said that the current method of assessing dwindling traditional telecom services is unsustainable, and that shifting to assessing wireless broadband would continue to hit consumers in the pocketbook--the USF fees are passed on by telecoms onto their customers' bills.

Instead, he said, the FCC should make Big Tech companies like Google and Facebook pay the USF  fees, which would be tough for them to pass on to consumers and which would, Carr said citing the study, "significantly reduce consumers’ costs, properly align incentives, and unlike assessing wireline broadband revenues, would not raise consumers’ monthly bill for internet services."

Carr pushed for the Big Tech USF payments in a May op ed, and used the study to renew his call for that new regime.

“For too long, Big Tech has been enjoying a free ride on our internet infrastructure. The current funding mechanism for the Universal Service Fund—a regressive charge placed on consumers’ monthly bills for traditional telephone service—is unfair and unsustainable," he said in response to the report. "Rather than artificially raising the cost of internet service for Americans, assessing Big Tech would sharply reduce consumers’ monthly costs."

It has been something of a case of dueling USF reports. Earlier this week, computer comnpany-backed groups were citing a a report that argued the FCC should instead require broadband service providers to pay into the fund, something Carr and the Singer/Tatos report said would not lift the fee burden from consumers.

USF currently taps telecom providers to subsidize advanced telecommunications service, including broadband service, to low-income areas and high-cost areas where there is less of a business case to reach, as well as to eligible schools and libraries.

Also Read: Who Should Pay for Broadband Connectivity

Those telecom providers—currently landline and mobile providers and cable and other VoIP providers—in turn, pass along the USF contribution as a line item on customers' bills.

Making streamers and other edge providers pay into the USF fund has been contemplated in a Republican-backed bill, the Funding Affordable Internet with Reliable [FAIR] Contributions Act. The legislation asks the FCC to consider if it should add to the contribution base "a search engine, a social media platform, a streaming service, an app store, a cloud computing service, or an e-commerce platform."

A new report, USForward, argues that the Federal Communications Commission needs to start requiring broadband service providers to pay into the Universal Service Fund if it is to save the program.

The USF currently taps telecom providers to subsidize advanced telecommunications service, including broadband service, to low-income areas and high-cost areas where there is less of a business case to reach, as well as to eligible schools and libraries.

Also Read: Who Should Pay for Broadband Connectivity

Those telecom providers — currently landline and mobile providers and cable and other voice-over-internet protocol (VoIP) providers — in turn, pass along the USF contribution as a line item on customers' bills.

The report, written by Carol Mattey of Mattey Consulting LLC, was released by NTCA-The Rural Broadband Association; INCOMPAS, whose members include competitive carriers and computer companies; and the Schools, Health & Libraries Broadband (SHLB) Coalition.

The report points out that the USF contribution base has declined significantly — “from $79.9 billion in 2001 to $29.6 billion in 2021” — as traditional phone service has been supplanted by broadband as the connection of choice, “placing inequitable [and it says, "unsustainable"] burdens on certain consumers and businesses and calling into question the sustainability of the USF programs,” it argued.

The report says the biggest decline has come in mobile voice revenue, since most mobile service revenues are attributed to data, which is not included in the assessment.

By contrast, the broadband revenues not subject to assessment have grown from $173 billion to $361 billion.

“Reforming the current revenues-based system to include broadband internet access service revenues is the preferred approach, both as a matter of policy and ease of implementation. Doing so would reduce the contribution factor to less than 4%,” the report said. That would be appropriate because USF now promotes universal broadband, because broadband access revenues are expected to be stable in the future, and because it can be done more quickly than other alternatives like assessing a USF fee on connections for phone numbers, the report said.

One alternative not offered up in the report, whose backers include streaming companies, is making streamed content services as well as broadband service providers pay into the USF fund, something contemplated in a Republican-backed bill, the Funding Affordable Internet with Reliable [FAIR] Contributions Act. The legislation asks the FCC to consider if it should add to the contribution base ”a search engine, a social media platform, a streaming service, an app store, a cloud computing service, or an e-commerce platform.“

Republican FCC commissioner Brendan Carr, a Big Tech critic, supports that suggestion, pointing out that “Big Tech derives extraordinary value from the use of these high-speed networks.”

Also Read: House Bill Would Make Streamers, Others Pay into Broadband Subsidy Fund

The FCC would be asked to assess which sources of revenue to tap, including digital advertising and user fees, and assess the current cost burden of USF on those who purchase legacy telecommunications services. Broadband providers, which are currently classified as information rather than telecommunications services, do not pay into the fund.

Raising new fees on broadband to help subsidize service would come on top of the billions of dollars the Biden Administration is putting into various new broadband subsidies to ensure universal and affordable broadband access.

During the Obama administration, Mattey, the report author, was deputy chief of the FCC's Wireline Competition Bureau, working to shift the USF‘s focus to subsidizing universal broadband, including launching the Connect America Fund.

A trio of Republicans has introduced a bill that would require the FCC to consider levying Universal Service Fund broadband subsidy fees on Big Tech edge providers including video streaming giants Netflix and YouTube.

There have been periodic calls to expand the USF contribution base given that it was set up to subsidize voice service to low income and hard-to-reach areas via fees on consumer's phone bills, while internet service has become the go-to communications technology for voice, video and data.

The Funding Affordable Internet with Reliable (FAIR) Contributions Act was introduced Wednesday (July 21) by Sens. Roger Wicker (R-Miss.), ranking member of the Senate Commerce Committee; Shelley Moore Capito (R-W. Va.); and Todd Young (R-Ind.).

Also Read: Who Should Pay for Universal Broadband Connectivity

The bill would direct the FCC to issue a Notice of Inquiry seeking comment on the feasibility of collecting USF contributions from edge providers, then report its findings to Congress within 180 days.

IT would also require the FCC to consider: 1) where it would get the money from edge providers, i.e. digital ads or user fees; 2) the fairness of the current contribution system; 3) how it might assess contributions from companies that it does not directly regulate; 4) the effects on tribal, low income and elderly consumers; and 5) what Congress would need to do to create the new contribution system.

“More consumers are moving to internet-based services,” said Wicker in a statement. “This raises concerns about the sustainability of fees collected from consumers’ telephone bills, which support broadband deployment in underserved areas. As online platforms continue to dominate the internet landscape, we should consider the feasibility of Big Tech contributing to the USF to ensure rural areas are not left behind as we work to close the digital divide.”

It is just the latest effort by Congress to bring powerful edge providers into Washington's regulatory ambit.

Also Read: Wicker Seeks Detailed USF Accounting

Currently USF money--approximately $10 billion per year--is collected from telecommunications carriers, who pass along the fees to their customers. The fee is calculated according to a percentage of their interstate and international revenues.

Taxing Horseshoes to Build Highways

Republican Commissioner and Big Tech critic Brendan Carr was pleased with the new bill. 

"For too long, Big Tech has been enjoying a free ride on our internet infrastructure," he said in a statement. "The current funding mechanism for the Universal Service Fund—a regressive tax on the monthly bills for traditional telephone service, both wireless and wireline—is unfair and unsustainable. Indeed, it’s like taxing horseshoes to pay for highways."

“Requiring Big Tech to contribute is more than fair. It is consistent with the network compact that has prevailed since the earliest days of America’s communications networks. Historically, the businesses that derived the greatest benefit from a communications network paid the lion’s share of the costs," he said. "I am pleased that the FAIR Contributions Act would call on the FCC to open a proceeding to look at ending the charge on consumers’ monthly telephone bills and shifting a fair amount over to Big Tech.”

The Federal Communications Commission on Wednesday (May 12) will launch its $3.2 billion Emergency Broadband Benefit (EBB) program, saying it expected the money to last a number of months, and signaling that the quicker the money runs out, the more successful it will have been.

Congress provided the funds and some of the mandatory framework, including that participating broadband providers — there are more than 825, according to the FCC — cannot exclude eligible households even if they have past or current delinquent payments.

Households already getting discounted broadband through various broadband operator programs will be automatically eligible for the EBB subsidy, but cannot be automatically enrolled by the broadband provider.

Also Read: FCC Unveils First Round of Emergency Broadband Benefit Participants

In fact, the FCC's Enforcement Bureau put out an advisory Tuesday (May 11) to that effect, "reminding" broadband providers that existing Lifeline subsidy customers "give their informed affirmative consent to participate in the EBB Program and are able to choose not to apply their emergency broadband benefit with their Lifeline provider without jeopardizing their existing Lifeline service."

The Lifeline subsidy is the existing Universal Service Fund subsidy for advanced telecommunications services for low-income residents.

The advisory also warns against marketing practices that could confuse consumers about the EBB program, including suggesting that signing up for EBB is required for getting Lifeline service or tying enrollment to obtaining other customer information.

Asked why that advisory was issued, an FCC official said it was to clarify some of the obligations and responsibilities of providers to make sure they were operating on a level playing field in terms of disclosures they were making to households.

The EBB is as much as $50 per household — $75 on tribal lands — and a one-time device subsidy of up to $100 for laptops or desktops, as long as the household chips in at least $10 toward the device cost.

The FCC plans to make public information from the Universal Service Administrative Co., which is overseeing the process, on how many households are taking advantage of the program and how much money is going out the door, according to an agency official speaking on background. The official had no estimate on how long the program would last, given that it has yet to start. Its length will depend on how many people avail themselves of it, the official said, adding that a shorter program means essentially a more successful program.

In addition to the Lifeline subscribers who are automatically eligible for EBB, there are at least 30 million children receiving free or reduced lunches, which qualifies their household for the emergency benefit. Households getting Pell Grants — another 6.5 to 7 million homes — are also eligible. There is, of course, some overlap among those categories, but it provides some idea of how many households could be applying for the money.

The FCC is also handing out more than $7 billion in a remote learning connectivity fund, but there is language in the legislation that created the EBB to prevent double-dipping, said one official. There could, however, be a case in which a household receiving the broadband benefit has a child receiving a device subsidy for schoolwork through the connectivity fund.

The connectivity fund device subsidy can go to a laptop or tablet, but can't go to a desktop or smartphone.

The FCC has denied Chinese telecom ZTE's appeal of its designation as suspect network technology that can't be subsidized with Universal Service Fund money and must eventually be replaced in existing networks.

The FCC's Public Safety and Homeland Security Bureau has denied a petition for reconsideration filed by ZTE, which along with Huawei were the first two tech suppliers designated a threat to U.S. network security and the communications supply chain by the FCC, which is coming up with a list of others. 

Related: Senate Bill Would Boost Rip-and-Replace Eligibility

“With today’s order, we are taking another important step in our ongoing efforts to protect U.S. communications networks from security risks,” said FCC Chairman Ajit Pai in a statement.

Pai has teed up a vote at the December public meeting plan on rules to implement a congressional mandate—in the Secure and Trusted Networks Act—to "remove and replace untrusted equipment," though Congress has yet to allocate the $1.6 billion of the $1.8 billion the FCC has estimated it will cost, a point Pai made in his statement. Now it is more vital than ever that Congress appropriate funds so that our communications networks are protected from vendors that threaten our national security," said Pai. 

Related: FCC Urged to Rip and Replace without Funds

In June, the FCC deemed technology provided by Chinese vendors Huawei and ZTE to be security threats pending an opportunity for them to appeal that decision, which they did. The agency blocked access to the Universal Service Fund to any U.S. network operator that didn’t comply with the edict to remove Huawei and ZTE tech from their networks and not to buy any more of it again. 

Related: Computers Cos. Provide Rip-and-Replace Guidance

The mandate burdened network operators with the task of replacing relatively inexpensive technology from the Chinese vendors with gear and software from pricier vendors—essentially buying the same tech twice, and paying substantially more the second time around. 

In March, the Trump Administration signed into law the Secure and Trusted Communications Act, which underwrote much of the replacement costs with tax dollars. 

The General Accounting Office has questions about the FCC's Universal Service Fund subsidy program and says the commission needs more data so it can measure the USF's effectiveness.

That is according to a report commissioned and released Friday (Oct. 30) by House Energy & Commerce Committee Chairman Frank Pallone (D-N.J.).

"Although the performance goals for the high-cost program reflect principles in the Telecommunications Act of 1996, not all of the goals are expressed in a measurable or quantifiable manner and therefore do not align with leading practices," the GAO report concluded. "Furthermore, FCC’s measures for its performance goals do not always align with leading practices, which call for measures to have linkage with the goal they measure and clarity, objectivity, and measurable targets, among other key attributes....By establishing goals and measures that align with leading practices, FCC can improve the performance information it uses in its decision-making processes about how to allocate the program’s finite resources."

GAO also said the FCC needs to do a better job of reporting on the program's progress toward performance goals.

GAO offered up some recommendations:

1. "The Chairman of FCC should revise the high-cost performance goals so that they are measurable and quantifiable.

2. "The Chairman of FCC should ensure high-cost performance measures align with key attributes of successful performance measures, including ensuring that measures clearly link with performance goals and have specified targets.

3. "The Chairman of FCC should ensure the high-cost performance measure for the goal of minimizing the universal service contribution burden on consumers and businesses takes into account user-fee leading practices, such as equity and sustainability considerations.

4. "The Chairman of FCC should publicly and periodically report on the progress it has made for its high-cost program's performance goals, for example, by including relevant performance information in its Annual Broadband Deployment Report or the USF Monitoring Report."

In their response to the report, the FCC's managing director, Mark Stephens, and Kris Anne Monteith, chief of the Wireline Competition Bureau, said they agreed with those recommendations. They also said that they would recommend that the Commission "revisit the overarching performance measures as part of ongoing and future proceedings" involving the high-cost program, which is the USF fund going to areas where buildouts are too costly to justify private investment. But they added that GAO's characterization of the high-cost fund as the primary reason for the rising contribution factor is incorrect since total spending on the high-cost program has only increased 10% while the contribution factor has increased by 35%.

While the tone of the report was not accusatory, Pallone read the results as an indictment of the FCC's handling of the program under FCC Chairman Ajit Pai.

“I requested this report because I had profound concerns about the Trump FCC’s handling of the Universal Service Fund, and today’s report validates those fears," he said. "GAO has found that the high-cost program has been woefully maintained, with basic governance structures either wholly missing or outdated, effectively being left to rot under Chairman Pai’s leadership.

“This news comes as the FCC pushes out $16 billion in high-cost broadband funding without adequate or accurate broadband maps to guide them – and is doing so over the express objections of Democratic FCC Commissioners.

"It is likely that, as a result, funding will be poorly targeted and wasted, when it could and should be going toward communities in desperate need of connectivity," said Pallone. "Today’s report confirms that Chairman Pai’s FCC has failed to be a proper steward of the Universal Service Fund, and future Commissions will be at a serious disadvantage in closing the digital divide as a result.”

That "RDOF" was a reference to the FCC's launch this week of the Rural Digital Opportunity Fund subsidies.

This month marked an important development in the vital Universal Service Fund (USF) program, with the introduction of the Expanding Opportunities for Broadband Deployment Act by Rep. G.K. Butterfield (D-N.C.). With America still working its way through the challenges of the COVID-19 pandemic, it’s not a moment too soon.

At a time when all trends point toward reduced regulation as the key to expanding broadband access to more consumers, especially those living in the more costly and remote service areas, this needed legislative reform would eliminate the outdated requirement of an Eligible Telecommunications Carrier (ETC) designation for broadband providers seeking USF grant money. By reforming this onerous and unnecessary obligation, the net result will be more broadband access and better connectivity for millions of Americans.

As many know, the ETC designation was created in the 1996 Telecommunications Act when voice service was the dominant telecommunications method in America, and state utility commissions played a significant role in the regulation of Title II telephone operators. This is no longer the case, with consumers now enjoying countless options to be connected via broadband, wireless and fiber. The ETC requirement makes no sense in the modern telecom age. It is not only obsolete, but actively discourages internet service providers (ISPs) from participating in federal funding programs that help connect Americans targeted to benefit from the USF program to vital information impacting their health, employment and education.

‘Phone Service’ Regimes Costly

The ETC designation forces ISPs to subject themselves to up to 40 state regulatory “phone service” regimes, which can be discouragingly costly and time-consuming. Worse still, it exposes providers to an unforeseen array of burdensome and unpredictable state regulatory requirements.

Outside of the ETC designation, state utility commissions have little oversight over broadband providers, making the designation entirely unnecessary and redundant to FCC oversight. The heavy costs and complexity of ETC status, with no palpable benefits, make it obvious why some of the most qualified providers are choosing not to participate in federal broadband grant programs, resulting in fewer choices and a less robust broadband market for millions of marginal U.S. broadband consumers.

FCC commissioner Michael O’Rielly accurately makes the point, “Compared to the burden and risk of becoming an ETC, certain providers have determined in the past and likely will again that the reward simply isn’t worth it.” Certainly, a 24-year-old telephone regulation that is dissuading ISPs from partaking in a worthy grant program intended to connect more Americans has no place in our current wireless world. O’Rielly adds, “Broadband [is] an interstate information service [and] should not function as a backdoor way to expose providers to burdensome and unpredictable intrastate regulations.” This is common sense that works to everyone’s benefit.

It’s not just broadband providers feeling the heavy weight of this antiquated regulation. The ETC further directly subjects consumers themselves to frustrating obstacles by demanding that low-income broadband customers switch services to a recognized ETC carrier to be eligible for federal support programs. This serves no purpose other than to disrupt the lives of broadband customers with no resulting benefit, again demonstrating how ancient regulations are hurting and inconveniencing average consumers.

FCC Can Be a Safeguard

With regard to concerns about abandoning ETC oversight, the FCC is well-positioned to safeguard the distribution and use of federal funds by grant recipients and auction winners, and ensure those same providers are equipped to meet service requirements and operational milestones. The ETC designation adds no benefits and protections beyond current FCC enforcement, a reality highlighted by the fact that many states operate their own broadband funding programs without the ETC designation requirement.

America’s consumers seeking better and more secure ways to stay connected over the internet appreciate the efforts of Rep. Butterfield in this critical effort for common sense regulatory reform. During the COVID-19 pandemic, staying connected to critical information has never been more important. The ETC designation is not only failing to help strengthen our nation’s online connections, it is actually doing the opposite of its stated goal and driving providers away and reducing consumer choice. For a better connection for the Americans who need it most, ending the ETC designation makes enormous sense. 

Gerard Scimeca is an attorney and co-founder of CASE, Consumer Action for a Strong Economy, a free-market oriented consumer advocacy organization.

A number of groups including Common Cause and the Open Technology Institute are calling on the FCC to provide unlimited talk and text to Lifeline recipients. 

Lifeline is the Universal Service Fund program that provides basic telecommunications services to low-income residents. 

Related: Bill Expands Access to Broadband Subsidies 

They want the change immediately and say it is to protect civil rights, specifically by providing equal access to life-saving services during the pandemic.  

They also point out that the services can help those assembled in mass protests against police brutality and systemic racism. 

Related: Jobless Numbers Cited in Call for Major FCC Lifeline Expansion 

"The pandemic has once again shone a light on the critical importance of telecommunications in health and education. Let’s ensure that we all can afford the connections that many of us take for granted," the groups told the FCC.

"Benton urges the FCC to act to help our most vulnerable neighbors during this national emergency. The pandemic has once again shone a light on the critical importance of telecommunications in health and education. Let’s ensure that we all can afford the connections that many of us take for granted," said Andrew Jay Schwartzman, senior counselor at the Benton Institute for Broadband & Society, another of the groups seeking the change. 

The FCC has proposed a $6 million fine against prepaid service provider TracFone Wireless. 

The FCC's Enforcement Bureau said the company apparently claimed Lifeline subsidies for customers who were not eligible to receive them. At issue are thousands of subs in Texas and hundreds of subs in Florida. 

Related: FCC Won't Drop Suspect Lifeline Subs 

The FCC said that was because sales agents in Florida, working on commission, manipulated eligibility information of existing subs to enroll fictitious accounts. In Texas, the company allegedly claimed more Lifeline support than the Texas Public Utility Commission authorized. The PUC is the one who makes eligibility calls in the state. 

The fine is based on a total of 5,738 apparently improper claims from a single month--June 2018--plus a bump up for the "egregious conduct" of the Florida agents.  

The Lifeline program is a monthly Universal Service Fund (USF) subsidy of up to $9.25 on broadband and phone service for low-income consumers. Participating carriers get money for each eligible sub, which they must pass through in the form of a discount. The USF fund comes from fees on consumer's phone bills. 

“Every dollar misdirected from the Lifeline program to a carrier that violates our rules is a dollar that won’t go toward providing more affordable connectivity to low-income Americans,” said FCC Chairman Ajit Pai in a statement. “Ensuring that this program works for those who need it most is especially important now, during the ongoing coronavirus (COVID-19) pandemic." 

The FCC has already taken steps to boost the Lifeline program, including temporarily waiving some rules aimed at safeguards against waste, fraud and abuse. But Pai signaled with the proposed fine that the FCC was still rooting out such waste, fraud and abuse when it found it," adding "I’m hopeful that our new rule prohibiting carriers from paying commissions to employees or sales agents based on the number of Lifeline customers they sign up will help deter the kind of apparent fraud we’ve seen in this case.” 

The FCC has launched a new API (application programming interface) that it says will make it easier for carriers to verify a potential subscriber's eligibility for the Lifeline program and thus make it easier for consumers to enroll. 

Lifeline is the Universal Service Fund subsidy of up to $9.25 per month carriers can get for each low-income resident. 

Related: GAO: FCC Should Better Monitor Fraud in High-Cost Program 

The API allows carriers to send applicant info directly to the FCC's National Eligibility Verifier for an eligibility check. The verifier is part of the FCC's effort to cut down on waste, fraud and abuse. 

“Lifeline is an important program for closing the digital divide for low-income Americans,” said FCC Chairman Ajit Pai in a statement. “By enabling carriers’ systems and the National Verifier to interact through this interface, we’ll make it easier for eligible consumers to enroll in the program. I’d like to thank the hardworking staff of the FCC and the Universal Service Administrative Company, which administers Lifeline, for making this improvement to the National Verifier. Because of their efforts, Lifeline will be a more efficient tool for connecting some of our most vulnerable citizens to broadband.”

"What began as connecting the country via telephone lines — which were, in those early days, sometimes fashioned from cattle wire — has evolved into the innovative broadband and fiber networks of the digital age." —Jonathan Spalter, USTelecom 

In a recent spending bill, Congress made $600 million available for additional broadband deployment to America’s rural areas. The U.S. Department of Agriculture’s Rural Utilities Service (RUS) has been tapped to administer these funds through a new pilot program.

Without question, this funding is a welcome and needed addition to the growing arsenal now aimed squarely at closing the digital divide to rural Americans once and for all. USTelecom members have led the way on connecting these communities for more than a century, through companies often run by generations of the same family. 

What began as connecting the country via telephone lines — which were, in those early days, sometimes fashioned from cattle wire — has evolved into the innovative broadband and fiber networks of the digital age.

Private investment from our nation’s broadband providers has placed them among the leading investors in the U.S. economy, putting, since 1996, more than $1.6 trillion of their own capital on the line to upgrade and expand the nation’s digital infrastructure. As a result, over the past 10 years, broadband in rural homes has risen 117%.

This private investment, paired with dedicated federal programs, will connect millions more in the coming years. That’s why great care must be taken to maximize the RUS program’s effectiveness.

Coordination Is Key

Unquestionably, coordination with existing rural broadband programs and guidance from agencies with a proven track record of supporting successful deployment are critical to ensuring broadband gets deployed to the communities and households that actually need it.

Related: FCC Rural Broadband Office Bill Introduced

I emphasize this point because some prior funding efforts have resulted in duplicative construction rather than maximizing coverage across truly unserved areas. Lack of coordination between agencies and existing programs not only led to the overbuilding of broadband networks, but also to the distortion of competition in the ongoing efforts to deploy broadband.

In a blog published in April, Federal Communications Commission member Michael O’Rielly made a reasoned argument for such collaboration, encouraging RUS to coordinate with the FCC and the National Telecommunications and Information Administration to ensure the funding prioritizes unserved areas and avoids overbuilding and duplicative construction.

Related: ISPs to Senate: Limit RUS Overbuilds

The smart coordination of RUS with existing programs we know already work, such as the Universal Service Fund, can best help providers extend and sustain broadband into our most rural communities. If this coordination doesn’t happen, projects selected by RUS could risk hollowing out the “Main Streets” of small communities, leaving another program, such as USF, to pick up the surrounding portions at much greater costs. 

New RUS funding should instead focus on areas not already reached, or not likely to be reached through programs such as the FCC’s High Cost and Remote Areas Funds, intended to bring service to many of the hardest-to-reach portions of the United States.

To that end, along with NCTA–The Internet & Television Association, the American Cable Association and ITTA (Independent Telephone and Telecommunications Alliance), we submitted a letter this week to the Senate Agriculture Committee which is considering the Farm Bill, asking them to modify the RUS Broadband Loan Program to better achieve its goal of helping truly unserved areas.

In a strapped budget climate, it is imperative that federal agencies work in lockstep to ensure that taxpayer dollars are stretched to their full potential. Rural Americans who are still waiting on fast and reliable broadband service to reach their front door can’t afford anything less.

Jonathan Spalter is president and CEO of USTelecom, the telecommunications industry trade association.

FCC chair Ajit Pai has proposed to ban the use of money from the FCC's Universal Service Fund for equipment or services from "companies that pose a national security threat to United States communications networks or the communications supply chain."

Pai circulated the proposal to the other commissioners Monday (March 26) for a planned vote at the public meeting April 17.

The item is a Notice of Proposed Rulemaking, so if it is approved at the meeting, the public will still have time to comment on it before a final order is voted; a source said the comment period would last 60 days.

The proposal in part stemmed from a Dec. 20 letter from Congress expressing concerns about Chinese companies Huawei and ZTE, plus a follow-up intelligence briefing, both of which were described as impetuses to the effort to monitor the supply chain, senior FCC officials speaking on background said.

They said the FCC is seeking comment in three main areas: (1) how the FCC should identify companies that pose a threat, (2) how to enforce the ban, and (3) how the funds should be recovered.

The rule would only apply to future equipment purchases and does not anticipate requiring carriers to remove equipment from companies identified as a threat, though it asks what should be done when companies want to upgrade that equipment.

Related: Huawei CEO Threatens To Exit U.S. Market: Report

“Threats to national security posed by certain communications equipment providers are a matter of bipartisan concern," Pai said. "Hidden ‘back doors’ to our networks in routers, switches — and virtually any other type of telecommunications equipment—can provide an avenue for hostile governments to inject viruses, launch denial-of-service attacks, steal data, and more. Although the FCC alone can’t safeguard the integrity of our communications supply chain, we must and will play our part in a government- and industry-wide effort to protect the security of our networks.

“That’s why I’m proposing to prohibit the FCC’s $8.5 billion Universal Service Fund from being used to purchase equipment or services from any company that poses a national security threat to the integrity of communications networks or their supply chains," Pai added. "The money in the Universal Service Fund comes from fees paid by the American people, and I believe that the FCC has the responsibility to ensure that this money is not spent on equipment or services that pose a threat to national security."

Related: Trump Blocks Broadcom-Qualcomm Merger

Pai did not say how the FCC would identify the companies that were a threat. The USF subsidies are used to underwrite the deployment and use of advanced telecommunications services, primarily broadband, to rural and low-income areas.

The ban would apply to all four USF funds, high-cost, Lifeline, e-rate and rural healthcare.

FCC commisioner Michael O'Rielly had just gotten the item, but said "it makes a lot of sense."

The Telecommunications Industry Association (TIA) backed the FCC's stepping in to address the issue.

“[TIA] takes supply chain security very seriously and appreciates efforts by the U.S. government to improve the security of the network," said government affairs SVP Cinnamon Rogers. "TIA and our member companies in the information and communications technology industry have been working in partnership with agencies across the federal government to improve cybersecurity. We strongly support efforts by the government to address concerns regarding certain communications equipment providers deemed to pose a heightened security risk.

“The FCC has a key role to play in these efforts, and we appreciate Chairman Pai’s recognition that addressing security concerns requires work across the federal government in partnership with the ICT industry," Rogers said. "We look forward to reviewing the proposal and working with the commission on these important issues in the months ahead.”

USTelecom, which represents telco ISPs including Verizon and AT&T, agreed with the sentiment, but was going to review the item and implications.

“USTelecom members have long considered network integrity a top priority and have worked closely with government partners to improve the security of communications networks," said USTelecom President Jonathan Spalter. "We will continue working with the FCC and other agencies to address supply chain vulnerability issues. Consumers and businesses alike correctly expect their information is secure when travelling across networks, and USTelecom will continue participating in government- and industry-wide efforts to construct responsible, reasonable and effective solutions. We look forward to reviewing the Notice of Proposed Rulemaking (NPRM) and understanding the implications for our industry, our nation, and, most importantly, American families and communities.”   

The FCC voted Tuesday (Jan. 30) on the final touches on its bidding framework for the $2 billion reverse auction of Universal Service Fund subsidies for broadband deployment.

It also has resolved outstanding challenges to earlier auction decisions.

The auction will commence July 24, with applications to participate due by March 30 for up to $1.98 billion over the next 10 years. FCC chair Ajit Pai encouraged participation by cable and satellite operators, rural co-ops, rural telcos, and others.

The FCC gave incumbent telcos the first shot at its Connect America Fund subsidies to deliver fixed broadband to rural communities.

Now it is giving competitors a shot at those funds, though incumbents can jump back in as well.

RELATED: FCC Identifies Targets for CAF II Funds

The FCC is simplifying bidding options and allowing for bidding by smaller companies, and won't require companies to identify every area they will serve before bidding.

The largest incumbent price cap carriers — AT&T, Verizon, CenturyLink — declined about $2 billion in Connect America Fund phase II (CAF II) support for building out broadband to high-cost (generally rural) areas, in 20 states, so the FCC is opening that pot of money up to competitors, like cable broadband providers, via auction.

All that money is coming from the Universal Service fund for high-cost, mostly rural, areas for which there is no business case for building out broadband absent that subsidy.

In February, the FCC voted to establish rules for handing out the money and sought comment on how it should structure the bidding.

FCC chair Ajit Pai is proposing allowing communications companies in Puerto Rico and the U.S. Virgin Islands to receive subsidies from the Universal Service Fund's high-cost tranche to apply toward restoring service in those areas and repairing infrastructure damaged by Hurricane Maria.

The subsidies are for delivering service to areas where it is uneconomical to do so, but given the hit Maria delivered on the islands, the FCC is "clarifying" that the money can be used to repair that damage, including filing for a single advance payment of up to seven months worth of subsidies. The item is in an order scheduled for the Oct. 24 meeting but could easily be voted earlier. 

That means up to $76.9 million would be available for assistance.

The order, which was placed on the agenda for the meeting, would conclude that "the catastrophic impact of Hurricane Maria has presumptively left all of Puerto Rico unserved by an unsubsidized competitor," which would then make all of Puerto Rico's providers eligible for the money.

It also "instructs carriers to coordinate restoration efforts with the Public Safety and Homeland Security Bureau to ensure that coverage is available to the most people."

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LEARN MORE: NYC TV Week is coming up, starting with the 27th annual Broadcasting & CableHall of Fame on Monday, Oct. 16. For more about #NYCTVWK, click here.

WASHINGTON — Bipartisan frustration with the Lifeline communications subsidy program was vented Thursday (Sept. 14) at a Senate Homeland Security and Government Affairs Committee hearing.

Witnesses taking some of that heat were FCC chair Ajit Pai; Seto Bagdoyan, director of audit services, forensic audits and investigative service at the Government Accountability Office; and Vicki Robinson, acting CEO of the Universal Service Administration Co.

The hearing title telegraphed that frustration, “FCC’s Lifeline Program: A Case Study of Government Waste and Mismanagement.” But while that title is the responsibility of the majority, both Republicans and Democrats took aim at the program.

The Lifeline program is the Universal Service Fund subsidy that goes to low-income residents to support basic lifeline communications service, previously phone service and now, increasingly, broadband Internet service.

Sen. Ron Johnson (R-Wis.), the committee chairman, said he would recommend the USF undertake a forensic audit of the top 30 providers participating in the program.

Johnson pointed to evidence that many people getting subsidized wireless service had other means of communications, so it was not really a lifeline. He suggested that ending the program was on the table, with the money perhaps better spent on paying down the deficit.

But Sen. Heidi Heitkamp (D-N.D.) said she did not want the baby thrown out with the bathwater. Heitkamp argued that the USF program was crucial, and that while officials need to get a handle on waste, fraud and abuse, she did not want the fund raided for deficit reduction, including by moving it from private banks to the U.S. Treasury as some have suggested.

Pai said moving the USF to the Treasury would be a way to better protect the money.

Arguably the legislator most incensed by the program's waste, fraud and abuse was ranking member Sen. Claire McCaskill (D-Mo.). The GAO witness was in attendance because of a GAO report (the "case study" of the hearing's title) McCaskill had asked for showing widespread waste, fraud and abuse in the program.

For example, the GAO was unable to confirm whether 36% of the 3.5 million individuals it reviewed (or some 1.2 million) actually participated in any of the qualifying programs, like Medicaid, that they stated on their applications for the subsidy.

“I don’t know where to start,” she said, then picked one of many issues: The $90 million owed by participating companies who were still receiving Lifeline money. Over the past two years, McCaskill pointed out, the FCC had written checks totaling more than $2 billion to the 10 carriers that owed it money, asking how in the world that was possible.

Pai said it was a great question, and he was committed to stopping that.

But McCaskill shot back that he wasn't, that there was no enforcement, and that they continued to get away with it. She conceded three Lifeline related settlements the FCC had struck, but the former DA said nobody had gone to jail. "It is outrageous that they have gotten away with this level of fraud," she said.

Pai said that it was a top enforcement priority and they would not be "falling through the cracks" on his watch.

McCaskill was also nonplussed that companies were able to override the local verification process, essentially saying that folks who had been deemed ineligible for the subsidy were eligible anyway. GAO found that 63% of the time it applied for the subsidy under fake names, it got one.

Robinson pointed out that a new national verifier could not be overridden, but that the program always had to balance integrity with participation. McCaskill shot back that the integrity of the process had already been lost.

Related: Senate Leaders Want Lifeline Abuse Investigations

McCaskill said she would personally help put some of the fraudsters in jail and asked Pai why the FCC was not doing more to weed out the waste and fraud. 

Pai said he was trying to, but that he was addressing issues that had essentially festered under previous management due to an unwillingness to crack down on the program's abusers. Pai actually launched his own investigation into Lifeline abuses when he was a commissioner, and has long argued the FCC needed to do more to rein in those abuses. As chairman, he rescinded some Lifeline eligibilities while the FCC figures out how to better verify that eligibility. 

Pai said the key is that the subsidy — $9.25 per month — should only go to those who would otherwise not have basic communications and that insuring that was a top priority of his FCC.

Asked by McCaskill for three things he could talk about that would bring some "urgency" to the issue of waste fraud and abuse, Pai said that 1) verification needed to be upfront, rather than follow an after-the-fact "pay and chase" model; 2) there needs to be a "meaningful" budget mechanism; and 3) the FCC must clearly define the goal of the program, then measure how and if it is meeting that goal.

McCaskill suggested handing out phones when folks apply for unemployment or SNAP (the Supplemental Nutrition Assistance Program), so their eligibility would already be established. 

At a couple of points during the hearing, it was Johnson who eased the tension by pointing out that while they were clearly venting on the program, they considered the witnesses as wearing "white hats," and that they were all there to work with the committee to improve it.

“It’s worth noting that on the day a Senate committee is examining the FCC’s Lifeline program to try to ensure that waste, fraud, and abuse is curtailed, the FCC has just announced that the new USF fee, in effect a tax on their phone service paid by all consumers, will be 18.8%," said Randolph May, president of free market think tank, The Free State Foundation. "I am a long-time supporter of a properly-formulated and properly-run Lifeline program to provide a safety net for low income persons. But this tax of almost 19%— the highest ever —  on all phone bills shows why it is so important to curtail fraud and abuse if support for the program is to be sustained."

The Senate Communications Subcommittee Tuesday (June 20) took a deep dive into the FCC's Universal Service Fund, with a focus on rural broadband deployment and telehealth.

Sen. Roger Wicker (R-Miss.), chair of the subcommittee, signaled that he and ranking member Brian Schatz (D-Hawaii) were reintroducing the Reaching Underserved Rural Areas to Lead [RURAL] on Telehealth Act, which would qualify some rural healthcare providers for USF funds. He said robust broadband connections are vital to the adoption of "lifesaving technology."

Wicker, who previously has introduced a bill requiring the FCC to improve broadband data collection, said, "[E]nsuring broadband deployment to rural healthcare providers is a critical component of the USF program."

He also said the importance of delivering broadband to rural areas -- Mississippi has a lot of them -- cannot be understated, citing economic and digital innovation.

FCC chair Ajit Pai has promised that closing the digital divide, particularly the rural divide, is a priority.

Sen. Schatz said all Americans need the essential connection to broadband to fully participate in society, from applying for a job todoing homework to accessing government services. He said the FCC's yearly broadband report demonstrates that millions of Americans (north of 30 million) lack access to high-speed broadband. "We can't close that divide without USF," he said.

He said the FCC should remain "vigilant" against waste fraud and abuse.

That was one of the reasons Pai cited in suspending the designation of nine telecoms as eligible for Lifeline USF subsidies, which are the subsidies for basic connectivity for low-income residents.

Related: O'Rielly, Clyburn Seek Comments on Broadband Subsidies

Schatz said the FCC needs to take into account unique geographical and topographical challenges--like those in his home state of Hawaii, that make broadband deployment particularly difficult and costly.

Shirley Bloomfield, CEO of NTCA-The Rural Broadband Association, told the legislators that the USF program's "viability and effectiveness" were "in peril" due to a flat budget.

She said that lack of money is leading to cancelled buildouts and layoffs. She then brought it home for committee chair Wicker. "In Mississippi, instead of upgrades in Fulton, the only investments will be to remain operational."

She said the FCC should tap USF fund reserves if necessary, to meet the shortfall, or increase the contribution factor, by only the cost of a Starbucks coffee a year, she added. She said another option would be for Congress to direct some infrastructure money to the program.

In an unusual move, FCC commissioners Michael O'Rielly, a Republican, and Democrat Mignon Clyburn have taken to the blogosphere together to issue an informal request for comment on means-testing of high-cost broadband subsidies

Formal requests for comment are motormanned by agency chair Ajit Pai.

Both Clyburn and O'Rielly agree that the FCC should not be subsidizing people who don't require government assistance in its quest to reach those who do.

"We should end the practice of spending scarce USF [Universal Service Fund] high-cost support to illogically subsidize the cost of communications services for very rich people who happen to live in the more rural portions of our nation," they wrote.

The high-cost fund is for the hard to reach -- mostly rural -- areas of the country where there is the toughest business case for building out broadband on a purely marketplace basis.

The commissioners offered a proposal to institute means testing, saying they want to spark a conversation and that they also hope to be able to bring up the issue more formally -- that would have to come from Pai -- so as to "properly engage the entire American public."

They suggested that one way to means test would be to set a threshhold for adjusted gross income (AGI) above which households would not get the subsidy, then use a pretty hefty cut-off: "Would it be reasonable to select an AGI of $1 million or $500,000?" they asked, meaning that someone making $999,000 would still get the subsidy.

Among the questions they want input on are:

"What are the advantages and disadvantages of using means-testing? Would it make the program more efficient as some commenters have suggested? Given our limited budget, would it enable the Commission and/or providers to retarget funding to areas or consumers in greater need of support? How can it be implemented without disruption to the current programs? Should it apply on a going- forward basis as rules for additional parts of the high-cost program, such as the Remote Areas Fund, are adopted? Could it eventually be implemented uniformly across all of the high-cost programs as they come up for renewal in the years to come, or would it need to be tailored to each program? How can it be structured to be effective and with sufficient accountability while imposing the fewest costs on providers and consumers? How should the Commission set income eligibility criteria? How should the Commission structure means-testing in a way that is administrable for the Commission, companies, and consumers? What data would the Commission need in order to effectively means-test the high-cost program?"

The FCC's Wireline Competition Bureau has released its 2015 broadband pricing benchmarks for incumbent eligible telecommunications carriers receiving Universal Service Fund high-cost CAF (Connect America Fund) support.

The high-cost fund subsidies incumbent telecommunications carrier phone, and increasingly broadband, service to hard-to-reach areas--rural, in particular--for which there is no business case.

The new benchmarks range from $72.40 for 10 Mbps downstream/1 Mbps upstream service with a 100 gig allowance, to $96.89 for 25/5 unlimited service. High-cost fund recipients that are subject to broadband performance obligations are required to offer service at or below the benchmark rates to qualify for the subsidies.

The FCC has signaled that 25 Mbps downstream is the new table stakes, but has not extended that to its USF subsidy floors.

The high-cost fund is part of the FCC's Connect America Fund migration of advanced telecommunications subsidies from traditional phone to voice and broadband, fixed annd mobile, at rates reasonably comparable to those of urban areas.

ILECs have fist dibs on the money, which cable operators, who compete with the ILEC's argue amounts to a sole source contract regime. Cable operators large and small have pushed the FCC to adopt a competitive bidding mechanism for the support rather than giving ILEC's a right of first refusal, after which cable operators could apply if the ILEC's opted not to apply.

The FCC has provided for competitive bidding in "limited" areas.

To check out all the speed subsidy benchmarks, click here.