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.” ■

If the FCC decides to make online content companies like Netflix and Amazon Prime Video pay into its subsidy pool for universal broadband, it will mean a worse and more expensive internet, according to a report produced by the Information Technology & Innovation Foundation.

ITIF supporters and board members include both current and former members of Congress from both parties and representatives from Google, Meta and Microsoft.

Also: FCC Seeks Authority to Add Edge to USF

The Federal Communications Commission has been deciding whether and how to expand those paying into its Universal Service Fund (USF) broadband subsidies and suggested to Congress that it could add broadband content companies to that roster, but would need lawmakers to give it that authority. Some argue it already has that authority but the FCC has sought clarification from Congress.

The FCC needs to find more money because the USF is based on fees on traditional telecom phone service, which has been migrating to internet-based phone services.

The new report, co-authored by ITIF director of broadband and spectrum policy Joe Kane and Jessica Dine, research assistant for broadband policy at ITIF, says making edge providers pay into the fund to expand the dwindling fee base would be a mistake.

"[T]he economics of internet traffic dictate that idea would backfire by raising prices for consumers and lowering the quality of online services," the report concludes. 

Why? The report points to sender-party-pay policies. In South Korea, for example, content providers like Netflix pay a set price to have their broadband content delivered to customers. The ITIF report says that led to less-efficient internet traffic, higher prices and lower quality, a fate it suggests would await a U.S. policy of making content providers pay into USF.

"If Congress expands USF fees to content providers, then American consumers will face some of the same problems that South Korean consumers are already experiencing," Kane said.

In addition, the report says, it's unlikely the universal broadband effort will go begging without a new influx of USF support, given the tens of billions of dollars in congressional subsidies authorized through COVID-19 and infrastructure-related legislation.

If that money is wisely spent by the federal and state governments — most of the money is being handed out by states — it makes more sense to scale back, not ramp up, USF support, Kane said.

In a report to Congress earlier this year on the state of USF that drew from comments it had solicited, the FCC said Monday (August 15) that if it did decide to include streamers and other edge providers, including digital ad companies, in the contribution base, it could be a lengthy process without some help from the Hill. The FCC said its authority to make edge providers and others pay into USF is not clear.

"The Commission has never analyzed its authority to regulate edge providers, which broadly defined, encompass a wide variety of different entities that provide Internet content, applications, and services," the FCC told Congress. "Before the Commission could require contributions under its permissive authority for any type of edge provider, it would need to conduct a rulemaking proceeding and establish a record that analyzed and applied the definition of ‘telecommunications’ to edge providers and demonstrated that the public interest supports requiring contributions."

As for making cable and telecom broadband providers pay into the subsidy — costs that are passed on to subscribers — the report suggested that could be problematic. Adding those costs to subscribers’ bills could potentially work against the administration’s goal, in creating the subsidy, of making broadband more affordable. But the FCC did not rule out making providers pay, again, if Congress steps in to clarify its authority to do so. ■

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." ■

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.  ■

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. ■

Cable broadband operators are telling the FCC that it should not start making them pay into the Universal Service Fund broadband subsidies, especially given the tens of billions of dollars in broadband subsidies the Biden Administration has offered up in COVID-19 and infrastructure programs, but that if it does, mobile broadband, including texting revenue, and edge providers, should be added to the contribution rolls as well.

Edge providers and competitive carriers have already weighed in saying that the current model of only making telecoms subsidize advanced communications that is increasingly broadband-focused is unsustainable and that ISPs need to take up the slack.

Also: Edge Tells FCC to Add ISPS, Not Them, to Contribution Base

In its comments on the FCC's inquiry into what USF changes, including who contributes, need to be made, NCTA The Internet & Television Association said that the FCC should leave any action on USF sustainability to Congress and should not take up contribution reform "at this time," particularly given marketplace changes over the past few years and "the issuance of massive amounts of federal funding
to address important broadband deployment and adoption needs."

In particular, NCTA said: "Any solution involving an expansion of the existing contribution base to include broadband revenue would represent a fundamental shift in USF contribution policy that should be undertaken by Congress." It told the FCC that such a "fundamental repositioning" requires The Hill's "buy-in and guidance."

As to Big Tech, NCTA said one way to make the contribution base more equitable includes "moving to an appropriations based system or directing the Commission to develop a more equitable contribution base that includes the very largest tech platforms that have benefitted immensely from and owe their very
existence to the deployment and use of the Internet."

Also: Could the FCC Make Streamers Pay Into USF

NCTA is also proposing a freeze--then a cap--on the USF high-cost support given those "massive amounts" of infrastructure-related broadband subsidies.

But cable ISPs also argue for getting rid of the contribution factors entirely, fees that wind up being passed along to customers. They suggest that a direct congressional appropriation for broadband support, rather than a fee/tax on communications services is the better way to go, something edge providers and competitive carriers would be OK with as well. ■

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."■

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.

Among a laundry list of Republican House bills targeted at edge providers introduced this week was a House version that would require the Federal Communications Commission to study the feasibility of making streaming services and others pay into the Universal Service Fund (USF) subsidy program.

The FCC-overseen USF provides billions of dollars to subsidize advanced telecommunications for low-income areas, schools and libraries, health care facilities and/or high-cost areas where there is an insufficient business case for private buildouts.

At present, it is paid into by telecom providers, which pass along the fee to their customers.

The Senate version was introduced last week by Republican Sens. Roger Wicker of Mississippi, ranking member of the Senate Commerce Committee; Shelley Moore Capito of West Virginia; and Todd Young of Indiana.

Also Read: Groups Call For USF Fees on Broadband Providers

The Funding Affordable Internet with Reliable [or FAIR] Contributions Act would ask the FCC to consider making “a search engine, a social media platform, a streaming service, an app store, a cloud computing service, or an e-commerce platform” pay into the fund.

The FCC would be asked to assess which sources of revenue to tap, including digital advertising and user fees, and assess the 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.

The FCC is also asked to consider whether the USF fund should be phased out once advanced telecommunications is universally available.

The House version of the bill was spearheaded by Republican Rep. Markwayne Mullin of Oklahoma. The report to Congress would be due six months after the date of enactment.

FCC Republican commissioner Brendan Carr, a vocal critic of Big Tech, supports making edge providers pay into USF.

“Big Tech derives extraordinary value from the use of these high-speed networks,” he said in a statement on the package of tech-targeted bills. “Requiring them to start contributing a fair share into the Universal Service Fund would promote Internet builds in rural areas and other efforts to close the digital divide.” 

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.”

If you’re an eagle eyed reader of your monthly phone statement, you’ll recognize the Universal Service Fund (USF) charge among the various government taxes and fees. Congress created USF in 1996 as a dedicated revenue source to connect hard to reach areas in the United States so everyone could have access to reliable telephone service. 

Today the fund focuses on broadband connectivity (more on that in a moment), but with cracks in the 25-year-old program starting to show, now is the time to put USF on sound footing.

The reality: USF is currently on an unsustainable financial path, funded by a regressive surcharge on a shrinking base of telephone customers. If it isn’t fixed, and fixed quickly, the fund won’t be able to meet its mandate and fulfill its connectivity promise – not just to the next generation, but to the current one. 

Let’s back up. USF started with a small fee on the phone portion of every customer’s bill. That worked well enough for a decade until ubiquitous phone service gave way to the high-speed internet that revolutionized communications and transformed our lives. 

As USF evolved into a program to increase broadband connectivity for homes in high-cost rural areas, for low-income consumers, and for schools, libraries and healthcare providers, the funding mechanism stayed the same – a fee on a rapidly shrinking base of telephone-only customers.

To keep USF solvent for these essential universal service programs the fee or "contribution factor" applied on phone service is rising. From five percent of a monthly telephone bill in 1996…to 10 percent in 2005…to 20 percent in 2018. 

In fact, the factor crossed the 30 percent threshold in the first quarter of 2021, increased again to 33 percent in the second quarter and is on pace to hit 40 percent by the end of this year. The problem is accelerating – not going away.  

In the face of our current pandemic, Washington, to its credit, has increased funding for broadband affordability and access. In December, Congress passed the Emergency Broadband Benefit Program, $3.2 billion to provide up to $50 a month ($75 on tribal lands) for broadband service and $100 for a connected device. President Biden recently signed a plan providing more than $7 billion to expand connectivity for at home learning.

That’s a welcome start, but that money will run out. And soon. If only half of eligible households take advantage of the emergency benefit, it will cost about $800 million a month and be exhausted in six months or less.

So how do we fix USF? 

First, Congress should provide more direct and sustainable funding. The FCC just raised more than $80 billion in a blockbuster auction of airwave rights that will carry 5G and other next generation connectivity. Congress should direct a significant portion of that money to universal broadband service or make direct appropriations to shore-up the fund.

Another option – one that should be explored even if Congress appropriates additional funds: broaden the base of USF contributors beyond the shrinking pool of telephone customers to include other players in the internet ecosystem. If Congress doesn’t appropriate funds, then it’s almost a certainty USF will implode absent structural reform. Congress needs to pass legislation – with guidance on how to expand the base – directing the FCC to reform USF.

Congress should also consider whether some of the largest of our nation’s technology, streaming and internet platforms, which don’t currently support our shared networks (but couldn’t have reached trillion dollar market caps without them), should contribute to the costs of ensuring universal connectivity.

A group of top tech and business CEOs recently called on Congress to promote broadband deployment and connect all communities in America. Right on. But it’s time for actions and dollars to meet words. 

Because of access issues or affordability challenges that predate, but were put in sharp relief by the pandemic, our country must step up to connect everyone. Everywhere. This starts with a plan to more broadly share responsibility for universal service. 

We can debate who should ultimately contribute to USF (and how much), but there’s no denying: the system needs fundamental fixing. If we are to build back better, universal broadband access and affordability are nothing short of foundational. Congress and the FCC should meet this connectivity moment and set the country (and USF) on a better path.

Jonathan Spalter is President and CEO of USTelecom – The Broadband Association.

With broadband subsidies much in the news these days--billions of dollars of new COVID-19-related connectivity money for example--Sen. Roger Wicker (R-Miss.), ranking member of the House Communications Subcommittee, wants the FCC to provide him with an accounting of the state of the Universal Service Fund.

Also Read: FCC Seeks Input on Remote Learning Subsidy

USF is the multi-billion-dollar advanced broadband subsidy for low-income and rural residents, as well as schools and libraries paid for by fees on telecom sub bills.

In a letter to acting FCC chairwoman Jessica Rosenworcel, Wicker pointed out that the pandemic had made closing the digital divide even more urgent and, as he evaluated the fund, wanted some facts and figures. (He also took the opportunity to praise the FCC for its work in keeping Americans, particularly rural ones, connected.)

Wicker wants, by March 9, a detailed report on the status of funds for the Connect America Fund (CAF), Lifeline program(low-income), E-Rate (schools and libraries), and rural health care. He wants to know the status of all funds, obligated, committed, or available, he said.

Also Read: Digital Disparities Must Not Stand

The FCC is currently deciding whether to free up more USF money for schools and libraries and is setting up $3.2 billion in one-time (or at least confined to the pandemic) subsidies in an Emergency Broadband Fund authorized by Congress, as well as the second of two congressionally mandate telehealth initiatives related to the pandemic.

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.

The FCC has launched its latest effort to bridge the rural digital divide, beginning the bidding on phase one its Rural Digital Opportunity Fund (RDOF). 

In August 2019, the FCC voted to propose handing out over $20 billion in Universal Service Fund (USF) subsidies for rural fixed broadband over the next decade, money that could go to cable broadband providers as well as telecoms. 

The FCC is giving out up to $16 billion in phase one to deploy broadband, with 386 providers having qualified to bid in the reverse auction.

Related: FCC Releases List of RDOF-Eligible Locations

The money will fund service for up to 10.25 million people. The FCC deemed roughly 5.3 million unserved locations--home and businesses--in areas eligible for the $16 billion in subsidies. Those are locations the FCC has determined lack high-speed broadband at the required speeds. The second phase of RDOF money--about $4 billion--will go to underserved areas. 

While service of at least the FCC's 25 mbps upstream/3 mbps downstream high speed definition is eligible for the money, the FCC will prioritize bids for higher speeds and lower latency. 

Related: Are You Ready for the Rural Digital Opportunity Fund  

“Today, I’m excited to announce that the bell has rung on the start of our historic $16 billion auction—one that will pave the the way for up to 10 million rural Americans to get broadband service," said FCC chairman Ajit Pai. "This is the biggest step yet in our ongoing commitment to close the digital divide."

The 386 applicants are a 75% increase over the number of bidders in the 2018 Connect America Fund Phase II auction, which was the forerunner of RDOF.

Commission Democrats had argued the FCC should not give out that money until it had gotten better data on where broadband is and isn't, something it is working on on its own initiative as well as at the command of Congress. But the FCC's Republican majority voted to proceed. Pai said the data on where broadband isn't was pretty solid--it is where data shows it is, but it turns out it isn't, that is the bigger issue. Delaying the bidding until the completion of a better data-collection framework would needlessly delay closing the rural digital divide, he argued, saying: "Digital opportunity delayed is digital opportunity denied." 

Actually, the June vote on the auction framework was unanimous--the Dems want the rural digital divide closed, too--but those Dems also used their public statements to hammer the item for giving out the money before the FCC had fixed the broadband maps, so both dissented from that part while approving the item as a whole.

As structured, the auction 1) adopts census blocks as the smallest geographic area for bidding, 2) reserves bids only for technologies proven to provide mass market retail broadband, 3) insures that bidders have the experience, the money, and the technology to meet performance requirements, and 4) adopts a multi-round, descending clock auction, which means low bid that meets performance and latency requirements wins. 

The FCC is prohibiting commonly controlled entities from filing more than one application and banning joint bidding arrangements.  

“RDOF’s mission: narrow the digital divide, maximize rural deployment and target the truly unserved is a connectivity mission shared by all USTelecom members," said Association President Jonathan Spalter. "These innovators built the high-speed communications networks that connect more rural Americans to the internet than any other industry segment, and they are leading the charge to connect all consumers. Broadband deployment can be tough and expensive work, but with a partner at the FCC that shares our belief in the essential role of broadband, bringing quality connectivity to the most remote parts of the country takes an important step forward today.”

“We need to go back to the drawing board on Universal Service,” Dr. Nicole Turner-Lee of the Brookings Institution urged policymakers today (October 27), stressing that the value of guaranteed telecommunications access should be based on applications “not just infrastructure.”  She singled out objectives such as “No child left offline” as a way to re-evaluate the goal of the Universal Service agenda, adding that broadband access should be viewed in terms of issues such as food or housing insecurity.  

“We have failed at Universal Service in cases of need,” she said. “We have to migrate money in the U.S. budget to show that broadband is critical to the delivery of education, health” and other vital services, Turner-Lee told the Media Institute’s monthly “luncheon,” now a virtual presentation for Washington telecom and media executives.

Turner-Lee, who is also director of the Center of Technology Innovation at the Brookings think tank, suggested that current pandemic offers a good time for government and institutions to examine the role of platform companies, including whether – or more specifically how – they should be involved in the new Universal Service program, given their expanding role in providing access to applications.  She acknowledged the potential dangers that could arise from the massive amount of data that the platform companies collect and keep about individuals, citing differential treatment on issues such as housing or health care based on that data. 

Although she did not suggest a specific plan for extracting funding from platform companies, she indicated that policymakers should consider such revenue sources. 

“Digital Solutions”

Throughout her Washington career, Turner-Lee has focused on “digital divide” problems, but she told the Media Institute audience that the pandemic has demonstrated that the digital divide is “not binary and is more complicated than we actually thought.”  She urged that the examination be focused on urban/rural “solutions” rather than “divides.”

“We need to think radically and push harder for the kind of economic data that will help us make decisions, such as what technology will work” to solve those challenges, she said.

Touting her upcoming book Digitally Invisible: How the Internet is Creating the New Underclass (Brookings Press, 2021), Turner-Lee cited her research about the pandemic’s effect on education.  She pointed out that underprivileged adults who need a computer for telework are often using the laptops issued to their school-age children for school work.

She also presented preliminary recommendations for a “Technology New Deal,” that will include policies for infrastructure and applications plus input from other community sectors, including banks, retailers and other organizations and groups affected by the impact of unserved and underserved broadband areas.

“We’ve got to rethink what it looks like, including who else has to be added to the ecosystem,” she said, urging that the list of topics should include affordability and a technology plan.

Although Turner-Lee’s presentation was not billed as an official political roadmap for the 2021 Congress and White House, Brookings – like other think tanks - typically rollout policy sessions in during late November and December in preparation for the post-election process.  She steered away from specific policy proposals, but in response to a question about what kind of support is needed to implement the ideas she had described, Turner-Lee uttered a single word: “bipartisan.” 

AT&T said that Congress needs to directly appropriate money to subsidize the closing of the digital divide, the importance of which has become even clearer during the pandemic.

In a blog post, AT&T EVP or regulatory and state external affairs Joan Marsh said the Universal Service Fund's price to consumers is a slow-motion disaster.

Currently the broadband subsidy program, which includes for low-income residents, for reaching hard-to-reach residents where there is no business case to do so, and for schools and libraries, is paid for by a tax on voice and transport for consumers and businesses, which currently pay 26% of their monthly bills for that subsidy.

Marsh said it is time to "rethink the fund" by moving it from such a tax to a program directly subsidized by a congressional appropriation.

The subsidy is increasingly being used to support the rising demand for broadband, including IP voice, but is only based on the declining revenues on traditional voice and transport services. She says that is unsustainable.

And while many have argued that broadband revenues should be included in the contribution base, she argues that is politically impossible. "The right objects because it is deemed a tax on the internet. The left objects based on the belief that it would impede broadband adoption by raising consumer bills, hitting low-income users the hardest," she said.

She points to a number of failed FCC attempts to reform the contribution rules. "We cannot keep having the same policy debates yet expect different policy results. That is the classic definition of insanity. It’s time to chart a new course," she said. " It’s time for Congress to directly appropriate the funds to get the job done."

Rep. G.K. Butterfield (D-N.C.) has introduced a bill that would give more broadband providers access to the FCC's Universal Service Fund subsidy money. 

High-cost areas are ones where it is sufficiently expensive to provide service that there is not a business case for it without subsidies. 

The Expanding Opportunities for Broadband Deployment Act would eliminate the requirement that only ISPs designated eligible telecommunications carriers (ETCs) can get USF high-cost dollars, something cable operators have been pushing for years. 

WISPA VP of government affairs Christina Mason, praised the bill's broadening of the definition of USF-supported services to include broadband-only providers and "streamline showings of financial viability and fitness in order to receive USF support." 

"As billed, these key changes will greatly expand opportunities for small rural and urban broadband providers, making it easier for them to apply for USF subsidies when the opportunity arises," said Mason. "Not only will this expand participation in the USF program to smaller, nimbler and able providers, it will mean more and faster deployment of broadband to areas most in need, shrinking the digital divide.   

"Many unserved areas lack broadband access in part because experienced and highly qualified broadband providers who are not designated as ETCs are not permitted to participate in the USF High Cost program," said Butterfield in introducing the bill.  

"Eliminating the ETC requirement would benefit low-income families in North Carolina and across the country by providing more choices for broadband service through the USF Lifeline Program while promoting competitive prices and high-quality service," he said. 

NCTA president Michael Powell had high praise for the move.  

“As America continues to wrestle with the devastating impact of the COVID pandemic, it has become clear that connecting all of our citizens to reliable broadband internet service is an urgent national priority," he said after the bill's introduction. "The Expanding Opportunities for Broadband Deployment Act introduced today by Rep. G. K. Butterfield (D-N.C.) is pro-consumer legislation that will expedite and expand broadband deployment to unserved communities that need it the most.  

"The bill would repeal an outdated and unnecessary eligibility requirement that unfairly prevents qualified internet service providers from participating in federal universal support programs designed to close broadband access gaps and encourage adoption. By retiring the eligible telecommunications carrier (ETC) designation, more ISPs with a proven track record of operating broadband networks would compete for government support. With Congress considering new strategies to advance access and adoption of broadband across America, now is the time to remove antiquated and unnecessary barriers that deter ISPs from delivering broadband service to every citizen.” 

"Charter applauds Congressman G. K. Butterfield for introducing the “Expanding Opportunities for Broadband Deployment Act,” the company said in a statement. "High-speed connectivity has never been more important and this legislation would have a near-immediate impact on the digital divide, expanding access to broadband and opening doors to limitless opportunity for those who need it most. Far too many Americans remain shut out from the life-changing benefits of high-speed internet, and Congressman Butterfield’s legislation would ensure critical government funding programs are aligned with today’s connectivity needs."

The FCC is seeking comment on how it should square its approach to preventing Universal Service Fund money from going to carriers that use Huawei and ZTE technology with Congress' mandate to do the same thing.

The Wireline Competition Bureau Monday (April 13) sought comment on the impact of the Secure and Trusted Communications Networks Act on its rulemaking on "Protecting Against National Security Threats to the Communications Supply Chain."

Related: FCC Seeks Info on ZTE, Huawei Tech

Back in November, the FCC voted unanimously to prohibit the USF support of equipment or services from any company that posed a national security risk to U.S. networks or the supply chain. It initially designated ZTE and Huawei to be such companies. It also sought comment on a program to reimburse current USF recipients for ripping and replacing that technology.

Then, on March 12, Congress passed the Act, which as the White House described it upon the President's signature, sounded pretty redundant. The White House said it "prohibits certain Federal subsidies from being used to purchase communications equipment or services posing national security risks; and establishes a reimbursement program for the replacement of communications equipment of services posing such risks." 

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.” 

House Energy & Commerce Committee bipartisan leadership has concerns about FCC chairman Ajit Pai's plans to replace the FCC's Mobility Fund Phase II broadband subsidy program with a 5G fund. 

Pai said earlier this month he plans to propose pulling the plug on the $4.5 billion Mobility Fund Phase II program and instead create a 5G fund that would put up to $9 billion toward Universal Service Fund support for 5G mobile wireless in rural areas to help close the digital divide. 

He plans to circulate a notice of proposed rulemaking to that effect early next year, according to an FCC official speaking on background. 

The $9 billion will be given out over a decade and is about $450 million per year more than the Universal Service Fund (USF) Mobility Fund allocation. The extra money will also come from the USF. The official said there appeared to be enough to cover the increase and Pai has said the extra 4.5 billion would come from savings in the program. 

Energy and Commerce Committee chairman Frank Pallone, Jr. (D-N.J.), Ranking Member Greg Walden (R-Ore.), Communications Subcommittee chairman Mike Doyle (D-Pa.) and Subcommittee Ranking Member Bob Latta (R-Ohio) joined in a letter to Pai Thursday (Dec. 19), seeking answers to the following questions: 

• "What safeguards will the Commission put in place to ensure that areas eligible for support are based on reliable coverage data? 

• "How will the Commission determine which services are eligible for support?

• "What performance benchmarks will you require to qualify for support?

• "What steps will the Commission take to ensure that new services are sufficiently secure?"

“You have noted the need to focus funds to ‘support the networks of tomorrow,’ yet today’s services remain unavailable for too many Americans," they wrote. "This is unacceptable, and the design and execution of any new fund must be carefully constructed to succeed where MF II failed. While the new fund will replace MF II, the goals of MF II remain unmet. As you move forward, it is critical that areas that lack 4G LTE coverage—or any connectivity—are not left behind in a rush to advance well intended efforts to deploy 5G.” 

A report from the Government Accountability Office concludes that the FCC could do more to fight fraud from small and midsized (so-called "rate-of-return") carriers participating in its $4.5 billion Universal Service Fund (USF) broadband High-Cost subsidy program. 

That is the subsidy program that subsidized broadband deployment to rural and other costly-to-deploy areas of the country so they can have access to advanced communications services on relative par--in quality and cost--with urban areas. 

The report, whose title is a recommendation ("FCC Should Take Additional Action to Manage Fraud Risks in Its Program to Support Broadband Service in High-Cost Areas") concludes that the FCC has not done enough to prevent rate-of-return carrier misconduct and compensating those for " improper, ineligible, or inflated costs."

The FCC does review the program for fraud, and in August launched a new Fraud Division to investigate Universal Service Fund abuses generally.  

FCC chair Ajit Pai has made combating waste, fraud and abuse in broadband subsidies an avowed priority, including launching an investigation of Sprint in September over alleged "outrageous" abuses of the Lifeline broadband subsidy, also part of the USF program.  

But GAO said that the FCC still was not planning fraud assessments tailored to the high-cost program. "[D]esigning and implementing an antifraud strategy that conforms to leading practices would help FCC effectively manage and respond to the fraud risks identified during the fraud-risk assessments," GAO concluded. "Without regular fraud-risk assessments of the high-cost program, FCC has no assurance that it has fully considered important fraud risks, determined its tolerance for risks that could be lower priorities, or made sound decisions on how to allocate resources to respond to fraud risks," the report said. 

Related: FCC's O'Rielly Cites Possible E-Rate Abuses

The FCC said it will take that recommendation into account, act on some for the suggestions and review others. "We remain committed to our statutory obligation to close the digital divide, while preventing waste, fraud and abuse of universal service funding," said FCC Managing Director Mark Stephens and Wireline Bureau Chief Kris Anne Montieth in a response to the GAO included in the report. 

House Energy & Commerce Committee chairman Frank Pallone (D-N.J.), who requested the report, called for a new FCC anti-fraud strategy ASAP: “I requested this report because it was clear FCC was failing to adequately protect the high-cost program against flagrant waste, fraud and abuse of federal funds by some rate-of-return carriers," said Pallone. "After more than a year of investigating, GAO agrees. The high-cost program provides federal funding that is integral to promoting broadband buildout in rural America. Chairman Pai must heed GAO’s recommendations and implement an antifraud strategy for the program," he said.” 

Comcast VP of regulatory affairs Beth Choroser has gotten a vote of confidence from NCTA-The Internet & Television Association. 

NCTA sent a letter to the FCC Wednesday (Oct. 23) renominating Choroser to be the cable representative on the Universal Service Administrative Company, which oversees the commission's multi-billion-dollar Universal Service Fund (USF) broadband subsidy program.  

Related: FCC's O'Rielly Proposes Cap on USF Fund

The board is required to have one director representing cable operators. Choroser's term expires Dec. 31. 

"Ms. Choroser has a background in budgeting and cost of service, and has worked collaboratively with industry representatives on universal service contribution reform ideas, as well as other policy and legislative efforts related to universal service programs," said NCTA's chief legal officer, Rick Chessen, in the letter. "She has significant expertise on regulatory surcharges, including those that fund state and federal universal service programs."

FCC chair Ajit Pai has been focused on weeding out waste, fraud and abuse in the program, so budgeting and cost issues are high on his list. 

Hill Democrats are continuing to push back on FCC Chairman Ajit Pai's proposal to cap the Universal Service Fund, which are the subsidies for phone and broadband underwritten by ratepayers on their monthly bills, saying it would harm healthcare, broadband deployment and education. 

Related: OTI Brands USF Cap Threat to Closing Digital Divide 

Sen. Ed Markey (D-Mass.) and more than two dozen more Senate Democrats--including presidential candidates Cory Booker, Elizabeth Warren, Kamala Harris, Amy Klobuchar, and Bernie Sanders--are calling on the FCC to scrap its proposal to put a budget on the overall fund, as well as a combined "sub-cap" on the E-rate and Rural Health Care funds. The USF comprises four funds: Those two and a Lifeline and Connect America Fund. The former is for low-income residents, the latter to migrate phone funding to broadband. 

That came in a letter to Pai dated Thursday, Sept. 19. 

Back in May, Pai circulated a proposal to cap the USF fund at $11.42 billion, which backers of that cap point out is "well-above current disbursement levels," and leaves a nearly $2 billion cushion for potential spending. 

"I believe we must set an upper limit of what we’re willing to take from hardworking American consumers to support these subsidies," said on of those fans, FCC Commissioner Michael O'Rielly at the time. "Determining this maximum level is also a necessary precondition to any effort to reform the FCC’s method for assessing USF contributions[ currently phone service, but not broadband service. is assessed]." 

“Each program that is a part of USF plays an indispensable role in achieving the ultimate goal of USF, access to communication services for every American,” write the Senators in their letter to FCC Chairman Ajit Pai. “The proposal to place a universal cap on these programs is a direct assault on the FCC’s mission of bridging the digital divide. The proposal to combine the sub-caps for the E-Rate and Rural Health Care funds is particularly troubling. None of the USF programs should be pitted against each other and forced to vie for a piece of the pie.” 

Also signing on to the letter were Sens. Charles E. Schumer (D-N.Y.), Richard Blumenthal (D-Conn.), Chris Van Hollen (D-M.D.), Tom Udall (D-N.M.), Kirsten Gillibrand (D-N.Y.), Patty Murray (D-Wash.), Doug Jones (D-Ala.), Amy Klobuchar (D-Minn.), Tina Smith (D-Minn.), Ben Cardin (D-M.D.), Dick Durbin (D-Ill.), Ron Wyden (D-Ore.), Bernie Sanders (I-Vt.), Cory Booker (D-N.J.), Maggie Hassan (D-N.H.), Tammy Baldwin (D-Wisc.), Kamala Harris (D-Calif.), Jack Reed (D-R.I.), Sherrod Brown (D-Ohio), Tammy Duckworth (D-Ill.), Elizabeth Warren (D-Mass.), Bob Casey, Jr. (D-Penn.), Jeanne Shaheen (D-N.H.), Kyrsten Sinema (D-Ariz.), Michael Bennet (D-Colo.), Catherine Cortez Masto (D-Nev.), Jacky Rosen (D-Nev.), Sheldon Whitehouse (D-R.I.), and Martin Heinrich (D-N.M.). 

The head of the Universal Service Administrative Co., which administers broadband subsidies under the Universal Service Fund, said that E-Rate fund recipients can indeed overbuild existing fiber plant if it is the most cost-effective use of the subsidy to get advanced communications so schools and libraries.

That came in a letter to FCC commissioner Michael O'Rielly from USAC CEO Radha Sekar in response to an inquiry from O'Rielly.

O'Rielly last month had written Sekar seeking some answers on whether government broadband subsidies should be used to subsidize wide area networks (WANS) where government subsidies have already been used to lay fiber as well as how many of those were being subsidized. Sekar did not have an answer for the latter, saying USAC did not track whether the money was going to WANS or whether the money for WANS or other special projects was overbuilding.

"USAC does not have sufficient data to determine if approved special construction funding partially or fully overbuilds existing fiber networks," Sekar said.

But as to whether "the E-rate rules permit funding for special construction projects, whether self-provisioned networks or networks owned by a commercial provider, that would duplicate, in whole or in part, fiber networks that have been built using federal funds?" The answer was yes.

"If the cost of applicant ownership over the life of the network is less expensive than the cost of using an existing network, the applicant can be approved for fiber construction funding of their own network," the USAC CEO said.

And if a consortium builds a WAN, O'Rielly asked--there have been 43 consortia seeking funding since 2014, says USAC--can it get money for a WAN even if individual consortium members can get service from an existing provider, Sekar said yes, again so long as the WAN as that is the most cost-effective option.

USAC could not tell O'Rielly how much money had been given out for WANS--since USAC does not track that--but it did have a figure for special projects, of which WANS are a subset*: $202,399,488.79.

“USAC’s purported inability to identify and prevent the overbuilding problem previously described exposes the inadequacy of the Commission’s current E-Rate rules, as well as the dire need for better coordination among the USF programs," said a spokesperson for O'Rielly. "Given the low threshold for satisfying the so-called “cost-effectiveness” standard, it’s unsurprising that certain special construction applicants were able to game the rules and configure their applications to achieve a specific outcome. This is unacceptable and needs to change: funding overbuilding in areas served by an existing fiber-based provider—when millions of Americans don’t have any broadband service at all—is a waste of ratepayer money and the epitome of bad government.”

In a speech this week to NTCA – The Rural Broadband Association’s legislative and policy conference in D.C. O'Rielly said he would continue to fight the use of government broadband subsidy money to overbuild existing broadband service deployed with private capital, including from high-profile funds with laudable goals, like E-Rate.

He suggested that some were trying to hijack the E-rate and Rural Health Care Universal Service Fund (USF) programs to "cannibalize your service areas, steal the biggest and most lucrative clients around, and jeopardize your ability to serve remaining consumers." O'Rielly favors capping the USF fund. 

*The balance of "special projects" are last-mile buildouts from existing providers' networks.  

WASHINGTON — Federal Communications Commission member Michael O'Rielly told rural broadband providers Monday that he would continue to fight the use of government broadband subsidy money to overbuild existing broadband service deployed with private capital, including from high-profile funds with laudable goals.

That has been one of his signature issues, a signature he was glad to write large in a speech to NTCA – The Rural Broadband Association’s legislative and policy conference in D.C.

O'Rielly has both sides of the conference covered, having dealt with legislation, including the 1996 Telecom Act, as a hill staffer, and with policy implementation at the FCC.

O'Rielly has long been working to expose efforts by the FCC and other agencies to use federal funds to overbuild their networks.

RELATED:O'Rielly Grills USAC on E-Rate Overbuilding

He suggested that some were trying to hijack the E-rate and Rural Health Care Universal Service Fund (USF) programs to "cannibalize your service areas, steal the biggest and most lucrative clients around, and jeopardize your ability to serve remaining consumers." O'Rielly favors capping the USF fund.

Last month, O'Rielly asked the USF administrator whether E-rate subsidies should be used to fund wide area networks (WANs) where government subsidies have already been used to lay fiber. 

The Republican commissioner told NTCA that the result is that scarce funds are diverted from unserved areas that most need them.

O'Rielly focused on specialized networks for E-rate and healthcare that have been funded "notwithstanding the fact that existing local providers could and would be willing to carry any necessary traffic and offer the requisite services."

He suggested those funds were being manipulated by "certain applicants," that "can only be met by a select, hand-chosen provider, sometimes the applicant itself under a self- provisioning scheme."

He says those networks were being allowed to "steal" customers from rural broadband providers, customers that could be critical to their viability.

He also warned about billions in Farm Bill broadband subsidies being used to overbuild.

"Thankfully, there is general agreement that the USDA must coordinate with the FCC to keep this from happening," he said. "However, coordination doesn’t mean a ban on overbuilding; it can mean as little as having a conversation between government agencies."

He told them to be on the lookout for "new pots of funding — such as potential federal infrastructure funding — that could create similar mischief."

O'Rielly said few were willing to tackle such overbuilding issues because "just talking about restricting E-Rate, Rural Health Care, or USDA funding provokes outrage by particular interest groups … Many of these entities don’t want any restrictions imposed on their ability to get federal funds, no matter the purposes."

But he suggested it was a tough job he felt it was his duty to tackle as a government official charged with making sure that all Americans have access to broadband. "Every dollar wasted to overbuild existing provider networks comes at the expense of those Americans without broadband service."

ISPs, including rural providers, have joined O'Rielly in arguing that money should be targeted to unserved areas, rather than underserved.

FCC Chairman Ajit Pai says the FCC is quickly trying to wrap up an item banning suspect tech from using government subsidy money for broadband buildouts.

It would apply to any technology considered a cybersecurity risk, but was prompted by concerns over Chinese telecoms Huawai and ZTE. That technology includes everything from phones, tablets and smart watches to mobile hot spots, broadband routers, switchers and servers.

Related: Huawei Says FCC Can't Block USF Funding

Pai was asked about the status of the item at a House Appropriations Financial Services and General Government Subcommittee hearing on the FCC's budget this week.

It has been a year this month since the FCC opened a proceeding on potentially barring Universal Service Fund (USF) subsidy money from being used to buy equipment or services from a company posing a national security threat to a U.S. communications network or supply chain. USF is the government subsidy program for advanced telecommunications to areas that are difficult to reach, either because of geography or economics.

U.S. intelligence agencies have collectively told Congress they are concerned about Chinese tech in U.S. systems due to the companies alleged cozy relationship with the Chinese government, which is the U.S.'s chief competitor in the race to 5G. Huawei president Ren Zhengfei has said his company does not spy or provide technological back doors to its products.

Rep. Mike Quigley (D-Ill.) said it was important to win the race to 5G, but to win it the right way. He said that Chinese telecom equipment issues were troubling and he was concerned about a 5G net being "weaponized and used against the American people."\

He asked Pai to explain the status of the item.

He said the FCC has developed a record--from public and stakeholder comment--is working with the National Telecommunications & Information Administration, the White House's chief telecom policy adviser, to finalize the proposal in terms of the agencies who will be determining who and what the threats are. "We hope to move forward quickly," he said, adding that he shared the priority the Congress attached on getting it done.

Related: Huawei Pushes Back Hard at FCC

The FCC proposed applying the prohibition only to future equipment purchases and not requiring carriers to remove equipment from companies identified as a threat, though it asked about such retroactive removal.

According to senior FCC officials speaking on background, the proposal stemmed, in part, from a Dec. 20, 2017, 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.

Huawei and ZTE have long been the objects of intense scrutiny in Washington over their alleged ties to the Chinese government. That has manifested itself in a congressionally-imposed ban on their tech in government contracts and more.

The various FCC commissioners have a number of issues with the potential ban, including whether it would disproportionately hurt smaller providers, how a company would be identified as a threat, what tech would be affected, and striking the right balance between protecting security and not making it harder to deploy plant.

In related news, Sen. Marco Rubio (R-Fla.), one of the leading voices for keeping suspect tech out of U.S. nets, praised a report that MIT was cutting off funding and R&D lined to Huawei and ZTE.

“MIT is right to terminate its funding and research links with Chinese state-directed actors Huawei and ZTE,” he said. “China, Chinese state-directed telecommunications, and other state-directed enterprises pose a significant, long-term threat to U.S. economic and national security, and American universities would be wise to wake up to that fact.”

Republican FCC Commissioner Michael O'Rielly is spearheading an effort to put the Universal Service Fund broadband subsidies on a budget, which means capping spending $11.42 billion, which he points out is "well-above current disbursement levels," and leaves a nearly $2 billion cushion for potential spending.

An item was circulated to that effect last week, setting off a storm of protest from some quarters

In a blog about the effort, O'Rielly said it was a much needed and overdue move, and dismissed its critics as "special interest groups and uninformed detractors reflexively opposed to any restraint on the agency’s redistributive subsidies."

He called it an effort to "inject fiscal responsibility" into the USF.

Related: FCC's Pai Pans USF Cuts to Small Carriers

"I believe we must set an upper limit of what we’re willing to take from hardworking American consumers to support these subsidies," said O'Rielly. "Determining this maximum level is also a necessary precondition to any effort to reform the FCC’s method for assessing USF contributions."

Related: O'Reilly Grills USAC on WAN Overbuilds

Critics of a cap on the fund abound.

“Latino communities need the FCC to find ways to make good on its promise to bridge the digital divide instead of perfecting ways to undermine programs working towards that goal," said Francella Ochillo, VP of policy and general counsel at the National Hispanic Media Coalition. "Arbitrary budget cuts to Universal Service Funds will disconnect Americans who are starving for digital opportunities, especially in unserved and underserved communities that Latinos call home.”

“This proposal may impede the FCC from making broadband affordable and accessible for all Americans, and those impacts will be felt most directly by our country’s most vulnerable communities, jeopardizing families who most need assistance connecting, students and low-income individuals who rely on internet access at schools and libraries, and families living in the most rural parts of the U.S.," said Public Knowledge Communications Justice Fellow Alisa Valentin.

"The SHLB Coalition completely agrees with the importance of fiscal responsibility, but imposing an arbitrary cap on the USF expenditures is an awkward approach that could undermine the FCC's stated 'top priority' of closing the digital divide," said John Windhausen, Jr., executive director of the Schools, Health and Libraries Broadband Coalition.

O'Rielly is having none of it.

"Based on some of the more hysterical accounts, a cap would only serve to undermine digital access and hurt the disadvantaged," said O'Rielly. "This couldn’t be further from the truth."

He said it is the lack of a governor on the fund that hurts the disadvantaged because the fund comes from fees on broadband user's bills, so raising what is in effect a tax on broadband access makes it harder for lower income households to connect. 

The American Cable Association said a number of the FCC's legacy regs "frustrate the public interest by imposing anti-competitive burdens on smaller operators."

That came in comments to the FCC on its latest biennial review of telecom regulations, which it is charged with reviewing and modifying or jettison ones that are not, or no longer, in the public interest.

ACA is particularly focused on the regulations on implementing the Universal Service Fund, the FCC-administered subsidy for advanced telecommunications.

ACA said smaller operators wind up bearing unnecessary costs and contributing more than their fair share to the fund--telecoms pay into the fund, often passing that cost on to subs in the form of higher monthly bills.

ACA wants the FCC to modify the contribution factor so it would cut down on costs and leave those operators more money to invest and compete against more highly capitalized competitors.

That, says ACA, would bring the rules in line with the public interest.

One argument ACA arguably could make is that it would free up more money for a particularly key investment--building out rural broadband, where ACA's member are on the front lines and which the FCC and Trump Administration says is a priority in an increasingly "internet of everything" world.

Chinese telecom Huawei has again told the FCC that the commission's proposal to exclude some Chinese companies' technology--Huawei and ZTE-- from Universal Service Fund broadband subsidy support is both legally and factually deficient.

That came in reply comments to the FCC this week.

Related: CCA Opposes USF Ban on Suspect Suppliers

Government contractors can't buy equipment from Chinese telecoms ZTE or Huawei as part of those contracts, and must submit a plan for phasing out the use of that equipment from its systems.

That came with President Donald Trump's signing (Aug. 13) of the John S. McCain National Defense Authorization Act and after the companies were called out by top U.S. intelligence officials as tied to the Chinese government and thus a national security threat.

Huawei says that the Act's prohibition is on government loan or grant programs, not the USF subsidy, and that even if it did, "it would be arbitrary and capricious for the Commission to rely upon it as a basis for its proposed rule banning expenditure of any USF support funds on equipment and services manufactured by specified companies."

Huawei argued for a more holistic approach to cybersecurity. "The telecommunications supply chain is both complex and global, and can only be protected through a risk-based solution developed in collaboration with the private sector. Huawei agrees with industry and government experts that cybersecurity threats require looking beyond banning specific vendors and instead adopting a holistic, forward-looking risk mitigation strategy."

The Telecommunications Industry Association saw it very differntly. It told the FCC in its reply comments that there is no doubt that Congress' ban on government funds for tech from Chinese telecom Huawei clearly applies to the FCC's Universal Service Fund advanded telecom subsidies."While opposing commenters [like Huawei] seek to manufacture a USF carve-out inthe new statute, none of their arguments withstand scrutiny," TIA said. TIA also says the FCC doesn't need to rely on the congressional ban, can instead adopt its USF tech ban under existing authority, and, in fact, should not wait for the Department of Defense implementation of its ban but "move forward aggressively."

FCC chair Ajit Pai back in March 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."

The FCC 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.

The technology includes everything from phones, tablets and smart watches to mobile hot spots, broadband routers, switchers and servers.

Sen. Joe Manchin (D- W. Va.) has challenged the FCC's Mobility Fund Phase II eligibility map. That is the map that shows areas eligible for Universal Service Fund broadband subsidy money.

Related: FCC Will Widen Mobility Map Challenge Window

Manchin pointed out Tuesday (Nov. 27) that he was the only member of Congress to formally challenge the map [a number did so informally] saying it overstates the availability of broadband coverage in his state. The more the map shows there is already service, the less area that is eligible for the government money--actually the money comes from service provider contributions passed on to their customers.

"West Virginia faces unique challenges when it comes to providing broadband access, and the first step to fixing that is making sure these maps accurately reflect coverage on the ground," he said. "This map determines who is eligible for a portion of the $4.5 billion that will be made available later this year, and I will continue fighting to ensure every community in West Virginia has the reliable, affordable broadband access they deserve."

Manchin sought a waiver of the challenge process back in May that allowed him to provide data to challenge the map. The FCC put out the broadband map in February 2018 showing areas eligible for Mobility Fund Phase II money over the next decade. 

It was part of its move to redirect wireless carrier subsidies where private capital was already at work. The National Telecommunications & Information Administration launched the map seven years ago as part of its oversight of broadband stimulus money, but the FCC took it over in 2015 when that oversight expired.

At the time, the FCC's Wireline Competition Bureau called it the best publicly available picture of broadband coverage, thanks in part to FCC collaboration with commercial cloud-based vendors. FCC chair Ajit Pai at the time called it an incredible tool for policymakers--like Manchin--and Americans interested in the topic, and conceded that while it was a first step, it was "a pretty darn good first step." Manchin clearly did not agree: “The data I submitted yesterday proves what every West Virginian already knows to be true: There are too many areas throughout our state that still lack reliable broadband coverage."

"The Commission will be reviewing all of the submitted challenges, including those filed by Senator Manchin," said an FCC spokesperson. 

The challenges comprise speed test data that were uploaded to the Universal Service Administrative Company (USAC) Challenge Portal. During the challenge process, the FCC released monthly public notices with snapshots of the data submitted each month.  .

The FCC Tuesday (July 24) began auctioning billions in broadband buildout subsidies to cable operators and other competitors to the incumbent telcos.

The FCC gave incumbent telcos the first shot at its Connect America Fund (CAF) subsidies to deliver fixed broadband to rural communities. Now it is giving competitors a shot at those funds in round two (CAF II), though incumbents can jump back in as well.

Round one of the Connect America Fund Phase II Auction (auction 903) began at 10 a.m. Rounds are six hours, and bidding is currently every other business day, which means the next round will be July 26, then Monday, July 30. The FCC could shorten rounds and increase the frequency to goose the bidding, as it did with the broadcast incentive auction, which was also a reverse auction.

In fact, it will move to daily, six-hour rounds starting with that July 30 round.

Related: FCC Approves 220 Applicants for $1.98 Billion CAF II Auction

Ten price cap carriers got first crack at the subsidy money in 2015. What they left on the table is being offered to rural electric cooperatives, fixed wireless providers, cable companies, and satellite providers (the incumbent local exchange carriers who passed on it in 2015 can also bid).

Cox, Altice USA, Verizon, Frontier and Cingular have all been approved to bid. 

FCC chair Ajit Pai has encouraged participation by cable and satellite operators, rural co-ops, rural telcos and others.

Up to $2 billion in subsidies will be available over the next decade to deliver broadband to unserved rural areas as part of the FCC's ongoing transition of its advanced communications Universal Service Fund. 

Related: FCC Approves Final Pieces of CAF II Auction

"Through this first-of-its-kind multiround reverse auction, a wide variety of providers are competing for universal support funding to expand broadband deployment," Pai plans to tell Congress at a Hill hearing Wednesday (July 25). "The reverse auction mechanism will ensure that this money is distributed efficiently and that we get the most bang for our buck."

A reverse auction means the low bidder wins. What is being bid on is subsidies for providing service in census blocks in states where the price cap carriers declined the support, "extremely high-cost census blocks" excluding New York (see below), Alaska and the territories, and "certain other census blocks that were removed from the offer of model-based support." Winners will have to provide annual reports and build-out certifications. 

There is $198 million in annual support available (or $1.98 billion for 10 years). The Phase II budget was actually $2.15 billion, but the FCC early on set aside $170.4 million to dole out via a New York State broadband subsidy program. Winners will get their funds in monthly installments over those 10 years. Winners must provide "at least one broadband and voice service at rates that are reasonably comparable to the rates for similar service in urban areas.

They also must meet various targets, including: 40 percent of the required number of locations in a state by the end of third year of support; an additional 20 percent in each subsequent year; and 100 percent by the end of the sixth year of support.

The FCC granted New York state a waiver to use the CAF II subsidies for its own competitive New NY Broadband Program for providing broadband in unserved rural areas, subject to conditions to ensure "broad participation and oversight."

Click here to check out the qualified bidders.

FCC Chairman Ajit Pai says that cuts in the Universal Service Fund via a mechanism instituted under the previous administration hurts small carriers and widens the rural digital divide and is evidence his USF reforms need to be finalized.

That came in a statement Tuesday (May 1) on the news that the Universal Service Administrative Company, which administers the government telecom subsidy program, wil be cutting support to small, rural carriers by over 15% this year.

Pai said that the mechanism, which he has proposed reforming to provide more certainty to carriers, has "created constant uncertainty for small, rural carriers, endangering their ability to make long-term investment decisions to bring high-speed broadband to the millions of Americans who still lack it."

The FCC allocated $180 million earlier this year as a stop-gap to avert budget cuts this year, but even steeper cuts are coming, he says.

"That highlights the importance of the Notice of Proposed Rulemaking we advanced earlier this year," he said. "In the Notice we take a hard look at the budget control mechanism and potential reforms to our rules to give small carriers greater investment certainty and to create incentives for more efficient operations. "

The comment period is still open on that notice, he pointed out, but when it has closed, he urged his colleagues to support final approval.

That notice, released March 23, would create a budget, the FCC said, that "will allow for robust broadband deployment in rate-of-return areas while minimizing the burden that contributions to the Universal Service Fund (the Fund) place on ratepayers and to bring greater certainty and stability to rate-of-return high-cost funding, both in the near term and in the future."

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.”   

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."

***

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.

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 is putting the pedal to the metal in its migration of the Universal Service Fund's advanced telecommunications subsidies to broadband in rural and other hard-to-reach places, as well as to customers who need government help to pay for it.

The day before a planned vote to reform the Lifeline low-income USF subsidy, primarily by migrating it to broadband, the FCC voted to reform USF support for rate-of-return carriers--smaller and midsized telecoms--including by supporting stand-alone broadband subsidies in high-cost areas, as it is for low-income households in the Lifeline reform.

The reforms of the high-cost, rate-of-return carrier subsidies include a $2 billion budget and cutting the rate of return. The FCC has already reformed the USF subsidy

Related: Sources—FCC Strikes Lifeline Compromise

In addition to adopting a host of changes (below), the FCC also sought comment on way to prevent carriers from billing USF for things like arwork or corporate jets, and on ways to increase broadband deployment on tribal lands.

The key reforms, according to the FCC, were in three areas: 1) modernizing the fund for rate-of-return carriers, 2) providing two "paths" the Connect America (broadband) funds that were first made available to the larger, price cap, carriers, and increasing "fiscal responsibility.'

In the first category, in addition to including support for stand-alone broadband--broadband had been supported only in a bundle with voice--the FCC will encourage investment by giving greater capital expenditure allowances for carriers with below average deployment and limiting it for those with above average deployment. It will target funds to areas without broadband competition and base broadband deployment on number of locations without service, the cost of providing that service, the support to be received.

The two paths to Connect America Funds are 1) voluntarily transitioning from legacy rate-of-return support to model-based support or 2) stand-alone broadband through the Connect America FUnd Broadband Loop support.

To boost fiscal responsibility, the FC is phasing down the allowable rate of return from 11.25% to 9.75%. It also limits operational and capital expenditures, with a budget of $2 billion.

"Since the FCC’s universal service reforms of 2011, rate-of-return carriers have made substantial progress expanding broadband deployment, expanding their reach by 45%," the FCC said. "But roughly 20 percent of all homes in rate-of-return areas still lack access to terrestrial fixed broadband meeting the FCC’s benchmarks for the high-cost program.

Efficient, effective universal service support is critical to the expansion of affordable broadband in high-cost rate-of-return areas that currently lack service."

Commissioner Ajit Pai dissented in part from the decision, citing the 10 Mbps standard for covered service, an issue he has with the Lifeline reform given that the FCC has set 26 Mbps as its aspirational benchmark definition of high-speed broadband. He did recognize that the FCC did make 25 Mbps an aspirational goal of sorts in the item, but only by way of taking aim at that as well.

"To be fair, the 10 Mbps standard is not the only one used," said Pai. "The Order does promise that in lower-cost areas (i.e., those “fully funded” by the model) where the rate-of-return carrier elects model-based support, a group of rural consumers (no more than 75%) will receive 25 Mbps broadband—by 2026.  In other words, a decade from now a subset of a subset of a subset of rural consumers will get access to the broadband speeds that 96% of urban Americans can purchase today.  That’s unacceptable."

Commissioner Jessica Rosenworcel supported the item, but did comment on its complexity. "I worry that this complexity can deny carriers dependent on the universal service system the certainty they need to confidently invest in their network infrastructure," she said, though she called it a "step forward."