USAC to O'Rielly: E-Rate Overbuilds Are OK

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.

Michael O'Rielly

Michael O'Rielly

"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.  

John Eggerton

Contributing editor John Eggerton has been an editor and/or writer on media regulation, legislation and policy for over four decades, including covering the FCC, FTC, Congress, the major media trade associations, and the federal courts. In addition to Multichannel News and Broadcasting + Cable, his work has appeared in Radio World, TV Technology, TV Fax, This Week in Consumer Electronics, Variety and the Encyclopedia Britannica.